Category: Sanctions For Frivolous Lawsuits

Rule 37 Applies in Bankruptcy Court


In Markus v. Rozhkov, 615 B.R. 679 (S.D. NY. 2020) the United States District Court (on an appeal from the bankruptcy court) upheld a sanction award against one of the attorneys in a contested bankruptcy matter. The court held that Rule 37 sanctions do indeed apply in Bankruptcy court.

The discussion as to whether Rule 37 applies in contested bankruptcy matters:

Worms argues that the Sanctions Order is invalid because it was predicated on Rule 37, which, under his interpretation, does not ever apply to Chapter 15 proceedings. The FR responds that Rule 37 sanctions are available in Chapter 15 proceedings. Although the contours of Worms’s argument are less than pellucid, the Court will attempt to map out his reasoning in some detail. Importantly, this section addresses the arguments about whether Rule 37 can apply in Chapter 15 cases as a general matter; it does not discuss, as later sections of this opinion will, whether sanctions under Rule 37 were 699*699 specifically appropriate in the context of this Chapter 15 proceeding.

Worms’s argument is essentially two-fold. First, he asserts that he cannot have been held liable under Rule 37 because Bankruptcy Rule 7037 states that Rule 37 “applies in adversary proceedings” and the Chapter 15 proceedings were not “adversary proceedings” at the time the Bankruptcy Court imposed Rule 37 liability. That logic holds, as far as it goes, but it does not go very far. Bankruptcy Rule 7037 does not state that the only time Rule 37 applies to bankruptcy is in adversary proceedings. And Bankruptcy Rule 9014 forecloses such a reading. Bankruptcy Rule 9014, titled “Contested Matters,” states under subsection (c) that, “[e]xcept as otherwise provided in this rule, and unless the court directs otherwise, [Bankruptcy Rule 7037] shall apply.” Accordingly, by the plain terms of Bankruptcy Rule 9014, Bankruptcy Rule 7037 (and thereby, Rule 37) does not only apply to adversary proceedings. Indeed, Worms acknowledges that Bankruptcy Rule 9014(c) makes Rule 37 applicable to some contested matters.

But, Worms argues, that universe of contested matters cannot include any contested matters arising in Chapter 15 proceedings because Bankruptcy Rule 9014(b) provides that a motion under Bankruptcy Rule 9014 “shall be served in the manner provided for service of a summons and complaint by Rule 7004,” and Chapter 15 notices are not served in that manner. It is undisputed that Chapter 15 proceedings are not initiated “in the manner provided for service of a summons and complaint by [Bankruptcy] Rule 7004.”[9] If Bankruptcy Rule 9014 made itself applicable only when Bankruptcy Rule 7004 service is required, then Worms might have a winning argument. But it does not.

Bankruptcy Rule 9014(a)-(b) provides: “In a contested matter not otherwise governed by these rules, relief shall be requested by motion … [and the] motion shall be served in the manner provided for service of a summons and complaint by Rule 7004.” See also 10 Collier on Bankruptcy P. 9014.02 (16th ed. 2019) (“As acknowledged (`not otherwise governed by these rules’) by the rule, however, there are instances in which a contested matter is initiated by some other means.”). Chapter 15 proceedings are “otherwise governed by these rules”—specifically, Chapter 15 proceedings are governed by Bankruptcy Rule 2002(q) (which provides a substitute for Rule 7004 service).

Therefore, Worms is incorrect that Bankruptcy Rule 9014 is applicable only where Bankruptcy Rule 7004 service is required. Bankruptcy Rule 9014 (and, accordingly, Bankruptcy Rule 7037) may apply to contested matters “otherwise governed by these rules.” In sum, Bankruptcy Rule 9014 makes Rule 37 (via Bankruptcy Rule 7037) applicable to contested matters in Chapter 15 proceedings.

Bankruptcy Rule 9020 is the final blow that topples Worms’s house of cards. Under that rule, “Bankruptcy Rule 9014 governs a motion for an order of contempt made by … a party in interest.” By operation of the transitive principle, Rule 37 therefore applies to Chapter 15 contested matters when a party in interest moves for an order of contempt. That is precisely the situation here.

As outlined above, Worms’s argument that Federal Rule of Civil Procedure 37 does not ever apply to Chapter 15 proceedings cannot survive the plain text of the interlocking Bankruptcy Rules. That could be the end of the analysis. It is worth 700*700 noting, however, that precedent and pragmatism are also against him.

On the former, courts frequently recognize that Chapter 15 proceedings can involve contested matters covered by Bankruptcy Rule 9014. See In re Worldwide Educ. Servs., Inc., 494 B.R. 494, 499 n.1 (Bankr. C.D. Cal. 2013) (“Since a petition for recognition is not defined as an adversary proceeding under Rule 7001, it … should be treated as [a] contested matte[r] under Rule 9014.”); In re Basis Yield Alpha Fund (Master), 381 B.R. 37, 43 n.14 (Bankr. S.D.N.Y. 2008) (applying Bankruptcy Rule 9014 to Chapter 15 proceeding); In re Japan Airlines Corp., 425 B.R. 732, 732 n.2 (Bankr. S.D.N.Y. 2010) (same); In re Toft, 453 B.R. 186, 199 (Bankr. S.D.N.Y. 2011) (same); In re Compania Mexicana de Aviacion, S.A. de C.V., 2010 WL 10063842, at *1 n.1 (Bankr. S.D.N.Y. Nov. 8, 2010) (same).

And on the latter, Worms’s position would lead to the absurd result that bankruptcy courts handling Chapter 15 contested matters would lack Rule 37 recourse to enforce their orders. Rule 37 is intended to address discovery misconduct. That can occur as easily in contested matters under Chapter 15 as anywhere else. It would be wholly illogical for the rulemakers to have deprived bankruptcy courts of the Rule 37 toolkit in Chapter 15 contested matters. As demonstrated above, a plain reading of the rules demonstrate that the rulemakers had no such illogical intent.

Rule 37 is available in contested matters arising within Chapter 15 cases.[

For other reasons, the court reversed the sanctions decision and remanded the case to the bankruptcy court. That discussion is too complicated for this blog.

The opinion is thoughtful and important. Every practitioner who is involved in a bankruptcy matter should be aware that Rule 37 does indeed apply.

What is “Reptile Theory?”


Before my last post was written I had never heard of “reptile theory.” I found an excellent opinion (sadly unpublished) from 2017 that explains the theory in greater detail.

Defendant Costco Wholesale Corporation seeks to stop plaintiff’s counsel from making various statements to the jury during the upcoming trial. Uncoiling Costco’s motion, it appears to ask that I order Aidini’s counsel not to: (1) make any venomous remarks that might incite the jurors’ “primal” instincts to protect their offspring (what Costco calls the “reptile theory” of advocacy),[1] (2) suggest that Costco is slinking from its responsibility by defending this case, and (3) comment on the witnesses’ credibility.

Aldini v. Costco Wholesale, Inc., 2:15-cv-505 (D. Nevada 2017)(Andrew Gordon, J.)

Once shed of its skin, Costco’s motion is little more than a request that I monitor Aidini’s counsel to ensure they stay within the strictures of the federal evidentiary and procedural rules. Of course, counsel must have an evidentiary or legal basis for any statements to the jury. And if some specific statements square with the evidence but also pose a risk of unfairly undermining the jury’s reason, I will balance those scales when the time comes.[2] But I will not issue a blanket pretrial ruling based on nothing more than Costco’s suspicion that there are snakes lurking in the grass.

As to Costco’s request that Aidini’s counsel be barred from suggesting that the company is slithering from its responsibilities by defending this case, I cannot say at this point that this would be improper argument. Of course, argument is reserved for closings, not to be made during opening statements. And Costco is free to point out in its closing that it is entitled to defend itself like any other party.

Costco next requests that I prohibit Aidini’s counsel from suggesting that Costco’s witnesses speak with forked tongues or otherwise questioning their credibility. Again, there is no basis to issue such a ban at this time. Aidini’s counsel agree they will make comments about credibility only if founded in the evidence—and they are allowed to do that.

Similarly, Costco’s arguments about the reptilian theory fail. Federal courts have hissed at motions based on this theory that seek a broad prospective order untethered to any specific statements the other side will make.[3] As Aidini points out, it may be permissible for him to argue that, under Nevada’s law of negligence, the jury should consider what a reasonable person in the community would do in Costco’s place.[4] But Aidini’s counsel is prohibited from making statements that would place the jury in Aidini’s skin, or would otherwise violate the Golden Rule or any other applicable restriction on counsel’s arguments.[5]

IT IS THEREFORE ORDERED that Costco’s motion in limine (ECF No. 48) is DENIED.

Comment: this opinion should be published. Protective Order Granted To Prevent “Reptile Theory” Questions

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.

Ignoring Discovery Requests And Court Orders To Comply Results In Dismissal of Case


The case is Tenzer v. Hazel, 2:17-cv-00459 (D. Idaho). The Plaintiff filed some sort of employment lawsuit against the Defendant. The Defendants issued discovery requests, but the plaintiff did not answer them. Plaintiff ignored court orders to comply with those requests. Later, when Defendants moved for Rule 37 sanctions, plaintiff claimed that he had a health problem that prevented him from complying with discovery requests.

Between August 27, 2019, and October 23, 2019, the District repeatedly attempted to obtain discovery responses from Plaintiff Randall Tetzner.[1] When such attempts were unsuccessful, the Court ultimately entered an Order Compelling Mr. Tetzner to respond to the District’s Interrogatories and Requests for Production by November 12, 2019. Dkt. 31. While Mr. Tetzner failed to produce any discovery, he notified counsel for the District, on the date his discovery was due, that he was having an invasive medical procedure. Counsel for the District requested more information regarding Mr. Tetzner’s health situation and the impact it would have on his ability to respond to discovery but did not receive any response. Although Mr. Tetzner did not file a motion with the Court to seek an extension, nor provide it with notice or any other information regarding his health condition, the Court, in an abundance of caution, gave Mr. Tetzner another extension of time and ordered him to respond to discovery by November 29, 2019, or face dismissal. Dkt. 32. Mr. Tetzner did not respond to the District’s discovery requests by November 29, 2019, and has yet to produce the requested discovery. Id.

On December 2, 2019, Mr. Tetzner notified the District’s counsel by email that he may need surgery and that his condition was life-threatening. The District’s counsel requested additional information but did not receive a reply. Nor has the District’s counsel received a reply to any of its emails in the last four months regarding Mr. Tetzner’s obligation to respond to discovery. Despite the Court’s November 1, 2019, and November 18, 2019, orders compelling him to produce discovery, Mr. Tetzner has never filed a motion for a protective order, or any other information regarding his health condition, with the Court.

The court found the 9th Circuit factors favored dismissal of the lawsuit.

Here, the Court already assessed the five Thompson Factors to determine whether case-dispositive sanctions were warranted, and found three of the five factors weighed in favor of dismissal. Dkt. 31, at 5-7 (finding the public policy favoring disposition of cases on their merits and the availability of less drastic sanctions weighed against dismissal). Because the Court had not ordered an alternative, less severe sanction at that time, the Court allowed Mr. Tetzner an additional ten days to respond to discovery, and then extended his response deadline another two weeks, sua sponte, upon Mr. Tetzner’s notice to the District’s counsel that he was suffering from health problems. As noted, Mr. Tetzner has never contacted the Court regarding his health condition, nor filed a motion to seek an extension or to request a protective order.

In light of Mr. Tetzner’s continued failure to respond to discovery despite two orders compelling him to do so, the Court finds that four of the five Ninth Circuit factors now weigh in favor of dismissal. Where, as here, a court order has been violated, the first and second factors support case-dispositive sanctions. Adriana Int’l Corp. v. Thoeren, 913 F.2d 1406, 1412 (9th Cir. 1990). Instead of considering the merits of this case, the Court must again address Mr. Tetzner’s failure to comply with his discovery obligations. Mr. Tetzner’s conduct thus impedes the expeditious resolution of this case and the Court’s ability to manage its docket. Malone v. United States Postal Serv., 833 F.2d 128, 131 (9th Cir. 1987); Hyde & Drath, 24 F.3d 1162, 1166 (9th Cir. 1994).

Under the third factor, a party is prejudiced if the non-responding party’s conduct impairs the requesting party’s ability to go to trial or threatens to interfere with the rightful decision of the case. United States ex rel. Wiltec Guam, Inc. v. Kahaluu Constr. Co., 857 F.2d 600, 604 (9th Cir. 1988). Because Mr. Tetzner has completely ignored both the District’s discovery requests and the Court’s orders compelling him to respond, the District is unable to defend against his case. The third factor thus supports dismissal. Adriana, 913 F.3d at 1412 (failure to produce documents as ordered is considered sufficient prejudice to warrant case-dispositive sanctions).

Although the fourth factor—the public policy favoring decisions on the merits— always weighs against dismissal or default, Wanderer v. Johnston, 910 F.2d 652, 656 (9th Cir. 1990), this policy “standing alone, is not sufficient to outweigh the other four factors.” Leon v. IDX Sys. Corp., 464 F.3d 951, 961 (9th Cir. 2006) (quoting Malone, 833 F.2d at 133 n. 2). Moreover, where, as here, a fair trial is potentially impossible due to a party’s failure to cooperate, the fourth factor should not be given much weight. Hyde & Drath, 24 F.3d at 1167.

Finally, the fifth factor requires the district court to consider alternate, less severe sanctions before entering a default judgment or ordering dismissal. The Court previously denied sanctions because it had not yet considered alternate, less severe sanctions, and entered an order compelling discovery. Now that both the Order compelling discovery and subsequent Order giving Mr. Tetzner an additional two-weeks to respond to the District’s discovery requests have both been ignored, the Court turns again to the fifth factor.

The Ninth Circuit requires a three-part test to determine whether a district court has properly considered the adequacy of less drastic sanctions: (1) whether the court implemented alternative sanctions before ordering default or dismissal; (2) whether the court warned the party of the possibility of default before ordering it; and (3) whether the court explicitly discussed the feasibility of less drastic sanctions and explained why they would be inappropriate. Malone, 833 F.2d at 130.

All three conditions are met in this case. The Court has already considered less severe sanctions by issuing two orders compelling discovery. Mr. Tetzner disregarded both orders. The Court has also twice warned Mr. Tetzner that failure to comply with its discovery orders could result in the dismissal of his case. Dkt. 31; Dkt. 32. Despite this, Mr. Tetzner failed to comply. Furthermore, if Mr. Tetzner was facing a serious or life-threatening medical condition, he should have simply notified the Court and provided supporting evidence. Ultimately, however, Mr. Tetzner failed to provide any medical information despite numerous opportunities to do so. In light of such conduct, it is clear that less drastic sanctions would be ineffective and will not provide the District with the discovery it needs to defend against Mr. Tetzner’s case. Where, as here, four of the five Ninth Circuit factors weigh in favor of case-dispositive sanctions, dismissal in warranted. Adriana, 913 F.2d at 1413. Although pro se, Mr. Tetzner “is expected to abide by the rules of the court in which he litigates.” Carter v. C.I.R., 784 F.2d 1006, 1008 (9th Cir. 1986); Ghazali v. Moran, 46 F.3d 52, 54 (9th Cir. 1995) (“pro se litigants are bound by the rules of procedure.”).

Rule 37(d)(3) requires the Court to award attorney’s fees against a party who fails to respond to discovery unless the failure was substantially justified, or other circumstances make an award of expenses unjust. Indigency, standing alone, does not make an award of expenses or attorney’s fee unjust. Barker v. Hertz Corp., 2008 WL 2705152, at *8 (D. Ariz.). Mr. Tetzner has not offered any justification to the Court, let alone substantial justification, for his failure to comply with its discovery orders. Nevertheless, the Court concludes that Mr. Tetzner, who appears to be suffering from health problems and has been granted leave to proceed in forma pauperis, should not be required to pay fees and costs. Dkt. 20; see Elliott v. United Parcel Serv., Inc., 2009 WL 213004, at *2 (W. D. Wash. 2009) (holding “it would be unjust to require a pro se plaintiff to pay fees and costs for the depositions.”).

The court then dismissed the case. Had the Plaintiff come up with an affidavit showing that he was actually ill, the case would not have been dismissed.

No Sanctions For Plaintiff Which Challenged Subject Matter Jurisdiction


In this case, Northeast Natural Energy, LLC, v. Larson, 3:18-cv-240 (W.D. Pennsylvania November 25, 2019), the plaintiff originally filed the case in state court. The Defendant removed the action to federal court. Plaintiff then filed an unsuccessful motion to challenge subject matter jurisdiction.

The procedural history: “

Defendants argue that Plaintiff’s conduct in this lawsuit warrants Rule 11 sanctions. (ECF No. 42.) Defendants state the following as Plaintiff’s “bad faith and vexatious conduct:” (1) Plaintiff filed a complaint and a motion to vacate the arbitration award in state court in West Virginia the same day it filed its Amended Motion to Vacate Arbitration Award in this Court without informing either this Court or Defendants, (2) Plaintiff did not inform this Court about any protentional lack of diversity of citizenship until after this Court issued its September 20 Order and Opinion, (3) Plaintiff served Defendants in the West Virginia action five days after this Court issued its September 20 Order and Opinion, and (4) the West Virginia action is wasteful because the West Virginia court lacks personal jurisdiction over the Defendants and service on the motion to vacate was eight months late. (ECF No. 28 ¶¶ 12-18.)

In response, Plaintiff asserts that sanctions are not warranted because its conduct was not vexatious or in bad faith. (ECF No. 41.) Plaintiff asserts that it filed its Motion to Vacate and the West Virginia action to preserve its case. (Id.)”

The district court denied the motion for sanctions on the ground that Plaintiff had an absolute right to challenge subject matter jurisdiction, at any time during the litigation.

Here, Plaintiff has a right to challenge subject-matter jurisdiction at any time, even for the first time on appeal, or even if the party had previously acknowledged the Court’s jurisdiction. See Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434-35 (2011). Plaintiff has filed an appeal in this action and therefore could have skipped over this Court and raised the issue of subject-matter jurisdiction for the first time before the Third Circuit. The Court finds that Plaintiff filed the Motion to Vacate for the Court to address its jurisdiction before the Third Circuit would address it.

The Third Circuit has held Rule 11 sanctions unwarranted when a party files a motion as of right. See Lony v. E.I. Du Pont de Nemours & Co., 935 F.2d 604, 616 (3d Cir. 1991) (holding that defendant’s filing of a forum non conveniens motion did not warrant Rule 11 sanctions because defendant had a right to move for such a dismissal). Because Plaintiff had a right to challenge this Court’s subject-matter jurisdiction at any time, the Court will not impose sanctions on Plaintiff for exercising this right. The Court holds that Plaintiff’s filing of the Motion to Vacate was reasonable under the circumstances of this case.

Accordingly, Plaintiff’s conduct does not warrant Rule 11 sanctions.

Edward X. Clinton, Jr.

http://www.clintonlaw.net

Don’t Sue the Court Reporter


In Karageorge v. Urlacher, 18 C 3146 (ND IL) the plaintiff was engaged in state court litigation with the father of her child. She then filed a federal lawsuit against Urlacher, his lawyers and the court reporter. She alleged that the court reporter had altered a transcript. Karageorge was pro se, but the district court dismissed the case and granted the court reporter’s motion for Rule 11 sanctions.

It is completely understandable that the child custody proceedings were extremely upsetting to Karageorge. But even considering her pro se status, Karageorge’s distress in connection with those proceedings did not give her license to file a lawsuit making factually dubious and legally unsupportable allegations against a court reporter, forcing her to spend time and money fighting the suit. As the court explained in its dismissal order, Karageorge’s legal theories against Miyuskovich were clearly meritless, Doc. 49 at 2; in fact, Karageorge did not even bother to defend them. Karageorge’s factual allegations against Miyuskovich were neither tested nor debunked in discovery or at summary judgment or trial, but that is only because this case did not make it past the pleading stage. On their face, Karageorge’s factual allegations were extraordinarily farfetched, and given the chance to present supporting evidence in her response to Miyuskovich’s sanctions motion, Karageorge presented none, confirming that they were groundless. Under these circumstances, Rule 11 sanctions are warranted. See Fed. R. Civ. P. 11(b)(2)-(3); Bell v. Vacuforce, LLC, 908 F.3d 1075, 1080-81 (7th Cir. 2018) (affirming sanctions against a party that sought relief based on an “infirm factual foundation”) (internal quotation marks omitted);

Edward X. Clinton, Jr.

Wrongful Discharge Case Dismissed Due to Rule 37 Violations


In February 2019, the Fourth Circuit affirmed the dismissal of all claims in the case Rangarajan v. John Hopkins University, 917 F.3d 218 (2019) a rare published opinion affirming Rule 37 sanctions.

Rangarajan was a nurse practitioner at Johns Hopkins before she was terminated. She sued for wrongful discharge and discrimination. During discovery she certified that her production was complete and Johns Hopkins moved for summary judgment. That’s when things got out of hand.

After discovery closed in September 2016 as directed in the district court’s scheduling order, Johns Hopkins filed a motion for summary judgment in both consolidated actions, based on the record that discovery had produced. Johns Hopkins contended that summary judgment in its favor was justified by “overwhelming evidence that Ms. Rangarajan did not satisfy the basic requirements of her job[ ] and that there were legitimate, non-discriminatory and non-retaliatory reasons for any adverse employment action that she allegedly suffered.”

In response to Johns Hopkins’ motion for summary judgment, Rangarajan took a number of steps to expand, embellish, alter, and recast her deposition testimony. First, she submitted a 51-page errata sheet to her deposition, proposing hundreds of edits to her testimony and justifying many of the changes by claiming that the court reporter had intentionally altered both the transcript and the audio 223*223 and video recording of her deposition. She stated:

The Court Reporters’ Office has informed me that they edited my video, audio and typed deposition transcripts. It is clear that key testimony is deleted, altered, cloned from various sound bites etc., to accomplish two things. 1. Change the testimony 2. To induce grammar mistakes thus making me sound as if I am speaking broken English.

She also sent an ex parte letter to the district court for the district judge’s “eyes only,” claiming similarly that the court reporter improperly edited her deposition.

Second, in support of her opposition to the summary judgment motion, Rangarajan filed a 54-page Declaration in which she introduced new allegations, attached 19 exhibits that had never before been produced during discovery, and revised testimony that allegedly contradicted her deposition testimony. While the district court did not find the Declaration to be “diametrically opposed” to Rangarajan’s statements in the deposition, it nonetheless concluded that reliance on the Declaration “would render the taking of [Rangarajan’s] deposition essentially useless.” Rangarajan’s opposition to Johns Hopkins’ motion for summary judgment was grounded mainly on her Declaration and not the evidence produced during discovery. As the district court noted, while Rangarajan cited her deposition testimony only 3 times in her opposition, she cited her subsequently filed Declaration “over 750 times.”

In addition, the newly disclosed exhibits revealed major failures by Rangarajan to produce documents requested of her during discovery. For instance, several exhibits — screenshots of Rangarajan’s emails — revealed her computer’s entire display showing retained copies of emails in two inboxes labeled “Jhmi” and “Jhmi 1,” and one of those inboxes contained 8,612 emails, most of which had never been produced during discovery; Rangarajan had only produced 1,658 documents during discovery.

Somehow Rangarajan filed four highly similar cases against Johns Hopkins. The District Court dismissed all of the lawsuits as Rule 37 sanctions and as sanctions for Rangarajan’s attempts to undermine the summary judgment process by changing her deposition testimony.

The Fourth Circuit affirmed the dismissal of the four lawsuits as a Rule 37 sanction. Part of the explanation is included here:

When reviewed it its totality, the record in this case reveals a totally dysfunctional performance by Rangarajan and her counsel, but mostly by her, as she acknowledged in her brief that “[t]hough [I] was, in fact, represented by an attorney, the court was well aware that [I] was in many ways acting without the benefit of counsel.”

To begin, Rangarajan commenced four actions, when only one was proper and would have sufficed, repeatedly reasserting claims that the district court had dismissed. After the district court denied her motion to replead qui tam claims in the first action, she nonetheless repleaded 228*228 them in the third action, and when the district court dismissed the third action, she refiled the same claims in the fourth action.

In the course of discovery, Rangarajan flagrantly failed to produce thousands of documents, several of which were core documents relating to her claims. She later produced some of those documents for the first time during the summary judgment process, because she thought she needed them to make her points. Also, after giving a daylong deposition, she sought to undermine and recant her testimony in a long, 54-page Declaration that, as the district court found, rendered her deposition essentially useless. Finally, she challenged the transcription of her deposition, claiming it was deliberately altered and recreated by the court reporter, a conclusion that the district court found to be conclusively false. In short, she rendered virtually useless the entire discovery process, in which the parties had invested substantial time and money.

During summary judgment, which required additional expenditures of time and money, Rangarajan relied almost exclusively on her Declaration, which had not been made part of the discovery record and which was often inconsistent with her deposition testimony, placing the summary judgment practice on an untenable and virtually useless footing.

In addition to these specifics, it was also apparent throughout the entire proceedings that, while Rangarajan was represented by an attorney, she refused to follow his advice and engaged in inappropriate actions, such as communicating arguments directly to the court ex parte and including substantive matters in her errata sheet. And the district court attributed this dysfunction between attorney and client to Rangarajan personally, a finding that Rangarajan has not disputed. As the court stated:

It [was] [Rangarajan] who continue[d] the attempt to support the unsupportable contention that the court reporting service made hundreds of alterations to her deposition video and transcript. It is clear that it was [Rangarajan] who authored the embellished narrative contained in her Declaration. It was [Rangarajan] who failed to turn over to her counsel documents that were clearly responsive to discovery requests and it [was] [Rangarajan] who misrepresented the amount of emails from her work email account that were stored on her home computer.

This opinion is an outlier because of the repeated violations of the rules by the plaintiff. I am also amazed that this behavior was tolerated by any attorney and, if anyone presented a situation remotely similar to this one, I would encourage the lawyer to withdraw from the case. Indeed, the lawyer is quite lucky he did not face professional sanctions or other consequences due to the failure to control his client.

Ed Clinton, Jr.

Tax Protestor’s Claim For Refund Nets Rule 11 Sanctions


Shawn K. Weiler sued the IRS for refunds for taxes he paid. Weiler v IRS, 17 cv 2226 (N.D. Ohio Eastern Division). The IRS moved for summary judgment and sanctions. The motion for summary judgment was granted and the Magistrate Judge also awarded Rule 11 sanctions for the filing of a frivolous pleading.

Mr. Weiler claimed that the Constitution does not permit the imposition of an income tax. He contended that (1) the Sixteenth Amendment does not authorize a direct, non-apportioned income tax; (2) the federal income tax is an improper excise tax that cannot be levied in this case; and (3) Weiler is not subject to income tax because he is not a governmental employee.

The IRS responded that these arguments have been rejected numerous times by U.S. Courts and are, in fact, frivolous.

The IRS also requested the imposition of Rule 11 sanctions against Weiler.

Under Rule 11, a party signing a pleading attests to the court that, to the party’s knowledge, information, and belief, formed after reasonable inquiry under the circumstances, the claims and legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law. By its own terms, Rule 11 applies to pro se litigants as well as to attorneys.

Once a pleading is found by the court to have violated Rule 11, the Rule itself states that the court “shall impose on the person who signed it, . . . an appropriate sanction,” which may include paying the reasonable expenses incurred by the opposing party as a result of filing the action. District courts have broad discretion in tailoring an appropriate and reasonable sanction. Courts should seek to “impose a sanction limited to that which is sufficient to deter repetition of future conduct, either by the offending party or by others similarly situated.”

Here, Weiler certainly violated Rule 11 in filing this action. He has asserted a taxprotestor claim of the sort that federal courts have uniformly rejected in clear language for years. And numerous federal courts have imposed Rule 11 sanctions in similar tax protestor cases.

Therefore, because Weiler asserted a manifestly frivolous claim that did nothing more than burden the courts and the government with addressing claims that he knew, or should have known, to be completely without merit, I recommend the imposition of sanctions consisting of $1,000 payable to the Clerk of Court.

(Footnotes Omitted)

Comment: the federal courts deal with a significant amount of tax protestor litigation. Here, the tax protestor presented legal theories that have been rejected by the courts for many, many years and was sanctioned as a result.

Ed Clinton, Jr.

Rule 11 Motion Denied As Premature


The facts in D’Ottavio v. Slack Technologies, 18-cv-9082 (D. New Jersey April 15, 2019) are disputed. The plaintiff sued alleging that the Defendant’s website sent him unsolicited text messages. Defendant denied these allegations and filed a counterclaim which alleged that plaintiff deliberately caused the text messages to be sent to himself. Plaintiff denied the allegations in the counterclaim. Defendant then moved for Rule 11 sanctions arguing that the denials violated Rule 11 and were without factual basis.

Because no discovery had been taken and the facts were in dispute, the court denied the Rule 11 sanctions motion. The reasoingin:

Plaintiff’s counsel objects to Slack’s arguments. Counsel relates that on July 26, 2018, the parties participated in a Rule 16 initial conference before the Magistrate Judge, and at that conference, Slack’s counsel advised the Magistrate Judge that it wished to take a forensic examination of Plaintiff’s electronic devices to back up its claims that Plaintiff used these devices to repeatedly send himself text messages using Slack’s messaging platform. The Magistrate Judge then ordered the parties to confer as to a forensic examination protocol. The parties submitted a stipulation agreeing to the protocol which was then so-ordered by the magistrate judge on August 13, 2018. The Court then ordered that Slack was to conduct the forensic examination of Plaintiff’s computers and cell phones by no later than September 10, 2018. To date, however, counsel states that Slack has not taken a forensic examination of Plaintiff’s electronic devices.

Plaintiff’s counsel argues that Slack’s motion for sanctions must be denied because it lacks any proof that Plaintiff actually did what Slack says he did. Counsel argues that Slack is seeking sanctions against counsel and Plaintiff for filing an answer that has not been found to be false or frivolous. Counsel contends that Slack could have obtained the forensic examination it demanded, but instead when Plaintiff filed a denial to the counterclaims, Slack tried to bully Plaintiff into withdrawing his response by threatening him and his counsel with sanctions….

In support of its motion for sanctions, Slack takes the position that its proof as to Plaintiff’s conduct — and the conduct of Plaintiff’s counsel — is unrebutted and unrebuttable. The Court cannot credit Slack’s position at this stage in the case.

Slack has asserted counterclaims against Plaintiff alleging that Plaintiff fraudulently manufactured his TCPA claim by sending thousands of text messages to himself. Plaintiff has filed an answer to Slack’s counterclaims denying that allegation. Slack’s claims are pending, still in dispute, and they will proceed to discovery. Slack may view Plaintiff’s denials to be disingenuous and unsupported by the facts, but the procedural posture of the case precludes the Court from applying what is essentially a summary judgment standard to Slack’s motion for sanctions, which, if Slack’s position were credited, would ultimately result in a judgment in Slack’s favor prior to discovery.[5]

Consequently, the Court will deny without prejudice Slack’s motion for sanctions, reserving Slack’s right to reassert its motion at the appropriate time after discovery on its counterclaims.

In sum, the sanctions motion was premature. Should defendant prove that the answer to the counterclaim contained false denials, defendant can reassert the sanctions motion.

Edward X. Clinton, Jr.

 

Fifth Circuit Upholds Denial of Rule 11 Sanctions – despite false allegations in Complaint


The case is titled, Mr. Mudbug Incorporated v. Bloomin’ Brands, Inc., (5th Cir. 18-30626). Mr. Mudbug sued Bloomin and its claims were dismissed. The underlying dispute was a claim by Mr. Mudbug that Bloomin had breached the parties’ food supply contract. The district court dismissed the claims. Bloomin then moved for Rule 11 sanctions on the ground that some of the allegations in the complaint were false and that the lawyer who signed the complaint had not done a sufficient investigation of the matter. The district court denied the motion for sanctions and the Fifth Circuit affirmed. Its reasoning:

BBI’s Rule 11 motion was based on the theory that some factual assertions in MMI’s complaint had no evidentiary support and were wholly false. The district court did not definitively determine if MMI had violated Rule 11. Instead, it denied the motion because even if MMI had violated Rule 11, it thought that the dismissal of MMI’s claims was already sufficient to deter future misconduct. BBI now argues that dismissing frivolous claims with no evidentiary support—a result that is already accomplished on the merits—is not an adequate deterrent and therefore does not fulfill the purposes of Rule 11.

BBI’s position has some logic to it. But we cannot say that the district court abused its discretion by denying the Rule 11 motion on the grounds that dismissal was a sufficient sanction. While we have noted that dismissal is “better grounded, not on misconduct [under Rule 11], but on the merits under Rules 12, 41, 55, and 56,” we have also held in the same case that “district courts may theoretically still dismiss baseless claims or defenses as sanctions” under Rule 11. Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 878 (5th Cir. 1988) (en banc). As we have never outlawed dismissal as an appropriate sanction under Rule 11, the district court’s denial of BBI’s Rule 11 motion was not based on an erroneous view of the law and was consequently not an abuse of discretion. BBI may feel that further sanctions are justified, but the district court found otherwise. Its decision is entitled to deference.