Category: Section 1927 Sanctions

Defendant Denies Involvement In Death of Joan Romain – But Sanctions Are Denied


This lawsuit relates to a suspicious death in Michigan – the death of Joan Matouk Romain. Did she commit suicide or was she murdered? There are two versions of the events.

Ms. Romain’s estate sued a number of individuals who were allegedly involved in her wrongful death, including Timothy Matouk. Matouk moved for sanctions on the ground that his cell phone records and work records show that he was elsewhere when Ms. Romain disappeared. He argued that the plaintiffs had sufficient information that should have led them to remove him from the case because he had no involvement in the wrongful death.

The District Court denied the motion because a witness in the lawsuit has testified that he saw Matouk near the crime scene. Therefore, sanctions under Rule 11 and Section 1927 were denied. The court found an issue of fact and explained it in this fashion:

Matouk and two other individuals may have testified that Matouk was working on a multi-jurisdiction task force in Warren the evening Romain disappeared. Nevertheless, Matouk has not pointed this Court to specific testimony representing that he was elsewhere when Hawk claims to have seen him in Grosse Pointe Farms or accounting for his whereabouts at any specific time. In any event, whether to believe Hawk versus another individual who may testify that Matouk was elsewhere raises a credibly question for a jury. It is not a question for this Court to resolve here and the fact that a question exists suggests that there is no basis for sanctions.

Source: ESTATE OF ROMAIN v. City of Grosse Pointe Farms, Dist. Court, ED Michigan 2017 – Google Scholar

Ninth Circuit Awards Fees Under Appellate Rule 38 and Section 1927


Rule 38 allows a court to award sanctions for a frivolous appeal. In this case, the Ninth Circuit ordered the plaintiff and his attorney to pay the legal fees the defendants incurred in defending what it found to be a frivolous appeal. The court held that Rule 38 allows the court to award “just damages” for a frivolous appeal. Rule 38 does not allow a court to award the fees incurred in preparing the motion for sanctions or in preparing the attorney affidavits required to obtain sanctions.

The explanation:

The award of fees and costs under Rule 38 thus must be limited to appellees’ direct fees and costs for defending against the frivolous appeal, and may not include the fees and costs incurred regarding the imposition of sanctions. See Cooter & Gell, 496 U.S. at 406-07; Sunbelt, 608 F.3d at 466-67 & n.4; Lyddon, 996 F.2d at 214; Lockary, 974 F.2d at 1178; see also Haeger, 813 F.3d at 1242, 1254(affirming award of attorneys’ fees and costs incurred after a misleading discovery response as a sanction under court’s inherent power to compensate party for losses sustained as a result of misconduct).

However, the Ninth Circuit also awarded fees against the attorney under 28 USC Section 1927, under which the court may sanction an attorney who vexatiously multiplies the proceedings. Under 1927 the Ninth Circuit awarded the legal fees for preparing the sanctions motions and attorney bills that it could not award under Rule 38.

In sum, this case is unusual because it awarded fees and sanctions under Rule 38 and 28 USC § 1927. The ruling allowed the defendants to recover almost all of their costs in defending the appeal and in seeking sanctions and proving up attorney fees.

Source: BLIXSETH v. YELLOWSTONE MOUNTAIN CLUB, LLC, Court of Appeals, 9th Circuit 2017 – Google Scholar

Federal Judge Awards Further Sanctions For Wrongful Conduct in Defending the Sanctions Motions


This is a case arising under 28 USC § 1927, which allows a federal court to award legal fees against an attorney who “multiplies the proceedings.” In this ill-founded RICO lawsuit against BMO Harris Bank, the court awarded sanctions against three law firms. What makes the case interesting is that the court awarded further sanctions for their conduct in defending against the sanctions motion itself. The underlying wrongful conduct was the failure of the lawyers to disclose an arbitration agreement that apparently barred them from proceeding in federal court and required them to file in arbitration.

The court explains:

After providing Nguyen the Rule 11 “safe harbor” period, Wells Fargo filed the Sanctions Motion [Doc. # 9]. Wells Fargo argues that Nguyen violated Rule 11 by filing the Fourth Lawsuit, in which she assisted Khan to assert claims Nguyen knew previously had been dismissed with prejudice in the First and Third Lawsuits. Nguyen responds that she did not violate “the Federal Rules of Civil Procedure” because: Khan’s complaint filed in the First Lawsuit was not groundless; Khan’s attorney in the First Lawsuit did not explain the significance of a non-suit with prejudice to Khan; Khan was unaware that her attorney had filed a non-suit with prejudice; and counsel for Wells Fargo bullied Khan’s attorneys, including Nguyen.[10]

Nguyen’s arguments are meritless. In filing the Fourth Lawsuit, Nguyen ignored two prior dismissals with prejudice of the very claims asserted in this case. The doctrine of res judicata precludes multiple lawsuits on the same causes of action. See United States v. Davenport, 484 F.3d 321, 325-26 (5th Cir. 2007). Under the doctrine, “a final judgment on the merits bars further claims by parties or their privies based on the same cause of action.” Id. at 326 (quoting Montana v. United States, 440 U.S. 147, 153 (1979)). The Fifth Circuit determines whether two suits involve the same claim or cause of action by applying the transactional test of the Restatement (Second) of Judgments, § 24, which turns on “whether the two cases under consideration are based on `the same nucleus of operative facts.” Id. at 326 (quoting In re Southmark Corp., 163 F.3d 925, 934 (5th Cir. 1999)). Independent of any argument Nguyen may assert regarding the effect of the non-suit with prejudice of the First Lawsuit, it is undisputed that Nguyen was counsel in the Third Lawsuit, which was dismissed with prejudice on April 2, 2015, just months before Nguyen filed the Fourth Lawsuit, and which created a final judgment with respect to the claims presented in the Fourth Lawsuit. Moreover, the Petition in the Third Lawsuit alleged that the First Lawsuit had also been dismissed with prejudice. Nguyen, who filed both the Third and Fourth Lawsuits, knew or should have known the basic legal tenets of res judicata. Nevertheless, she ignored the dismissal of the Third Lawsuit.

Nguyen also has delayed resolution of the issues regarding foreclosure on the deed of trust on the Property by repeatedly filing bankruptcies on behalf of Khan without completing the reorganization or discharge process. Together with her disregard of res judicata, this course of conduct suggests an egregious pattern of harassment and purposeful unwarranted delay. See Hall v. Chase Home Fin., LLC, No. A-10-CA-206-SS, 2010 WL 2732404, at *1 (W.D. Tex. July 8, 2010) (imposing sanctions on plaintiff under Federal Rule of Civil Procedure 11 because filing of the case, which was barred by res judicata, “is clearly intended to harass the opposing parties and delay the inevitable foreclosure of property in question.”) There simply was no excuse for Nguyen’s pursuit of Khan’s duplicative and barred causes of action. Nguyen’s conduct violated Federal Rule of Civil Procedure 11 and merits the sanctions sought by Wells Fargo.

Finally, a significant financial sanction is appropriate to emphasize the seriousness of the misconduct and to deter future misconduct. See Doc. 264 at 58-59; Norelus, 628 F.3d at 1298-99. The attorney’s fees Generations incurred as a result of the renewed motion and first appeal are relatively small in context, and, as the Court has explained, the misconduct was outrageous, aspects of the defense were shocking, and sanctioned counsel show no understanding of why their actions were inappropriate. Sanctioned counsel have emphasized their nationwide experience in large class actions, e.g., Doc. 246-1 at ¶¶ 6, 8, and sanctioned counsel and their firms have appeared in courts across the country on behalf of putative class members.[4] Given the brazen nature of their original misconduct, their willingness to engage in cynical gamesmanship and deliberate obfuscation, and the risk of harm to vulnerable putative class members in cases across the country from such inappropriate litigation tactics, a small financial sanction will not be an adequate deterrent.

Source: Dillon v. BMO HARRIS BANK, NA, Dist. Court, MD North Carolina 2017 – Google Scholar

New Jersey Court Refuses To Shift Fees Even Though Plaintiff’s Case Was Thin


Plaintiff brought a discrimination case against his employer after he failed a drug test and was terminated. Plaintiff brought claims under 42 USC 1981 and the New Jersey Law Against Discrimination. Defendant obtained summary judgment and then sought legal fees pursuant to 42 USC 1988 and 28 USC 1927. The court denied the fee-shifting request, even though plaintiff’s case was “thin.” The court complained that the defendant did not seek sanctions before summary judgment was granted:

Even though defendant complained to plaintiff’s counsel and to the magistrate judge about its perceived shortcomings of plaintiff’s case and counsel’s involvement, it does not appear that defendant filed any formal motions for sanctions before the magistrate judge or this Court. Federal Civil Procedure Rules 11 and 37 exist to rectify all of defendant’s concerns — at the time the concerning actions are occurring — that defendant has raised in its after-the-fact motion.

The Court acknowledges that plaintiff’s case was thin, and that plaintiff’s counsel would not have disserved his client if he advised plaintiff to voluntarily relinquish his claims prior to summary judgment.[3] The Court also acknowledges the time and expense suffered by defendant as a result of plaintiff’s ultimately unmeritorious claims against it. But the Court cannot find that the circumstances of plaintiff’s claims and counsel’s actions rise to the level that warrants the imposition of sanctions against plaintiff or his counsel.

Source: Acevedo v. FLUOR ENTERPRISES, INC., Dist. Court, D. New Jersey 2016 – Google Scholar

Court Admonishes Plaintiff’s Counsel For Filing Sloppy, Poorly Researched Pleadings But Declines to Sanction


This is a case where the plaintiff’s counsel’s conduct in filing a sloppy complaint and then in failing to cure the deficiencies of the complaint in an amended filing earned plaintiff’s counsel an admonishment from the District Court. Notably, the court declined to sanction plaintiff’s counsel. The court explains:

Defendants argue that Plaintiff’s counsel, Mr. Kober, behaved “unreasonably and vexatiously” in responding to their pre-motion conference request. In Defendants’ initial letter, Defendants pointed out many of the pleading deficiencies in the initial complaint. Plaintiff then sought this Court’s leave to file an amended complaint, which this Court granted. February 16, 2016 Order [Dkt. No. 14]. At that time, the Court remarked that permitting amendment was the proper course “particularly. . . given the woefully deficient allegations contained in the Complaint at this juncture.” Id. Plaintiff filed an Amended Complaint, which, as the above analysis makes clear, failed to meaningfully address many of the basic pleading deficiencies Defendants have identified. Defendants were then forced to bring the instant motion, in response to which Plaintiff finally conceded that several of the claims lacked any merit.

The Court is certainly troubled by the above conduct. A neutral reading of the filings in this case shows that the Amended Complaint, for whatever reason, contained claims which had no clear basis in law, even after that fact was pointed out to him. Further, counsel’s labored explanation that he only felt obligated to amend certain issues in his complaint, while saving any legal research into other potentially faulty claims for a later motion to dismiss undermines the obligation of lawyers to have a good faith belief in their claims prior to bringing them.

Nevertheless, at this stage, the Court declines to issue monetary sanctions under 28 U.S.C. § 1927 or Federal Rule of Civil Procedure 11. Counsel’s explanation of his thought process in proceeding as he did, disturbing as it is, assuages the Court that he did not, at the least, act in bad faith or with a vexatious motive of multiplying the proceedings. The Court does take this opportunity to formally admonish him for the above-described conduct in this case. Mr. Kober’s inability to adequately research the claims prior to asserting them in the Amended Complaint unquestionably caused Defendants the burden of having to oppose those claims with a formal motion. It also caused this Court to expend judicial resources in the administration of claims that, after several attempts by the Defendants and the Court to sift through them, even Mr. Kober now concedes lack merit. The Court hopes that this admonishment is a sufficient sanction under Rule 11 at this stage, and counsel will be guided accordingly in future filings.

In sum, plaintiff’s counsel can thank the district court for its mercy.

Source: Sapp v. PREMIER EDUCATION GROUP, LP, Dist. Court, D. New Jersey 2016 – Google Scholar

District Court Sanctions Attorney For Frivolous Pleadings In Credit Reporting Case


This is a case in which a lawyer was sanctioned on the basis of Rule 11 and Section 1927 for pursuing baseless litigation against Trans Union, a credit reporting company. The gist of the case was the credit reporting bureaus violated the Fair Credit Reporting Act by providing a copy of plaintiff’s credit report to a debt collection law firm without a permissible purpose. Most of the defendants settled the allegations but Trans Union fought, eventually obtaining summary judgment.

The lawyer in this case erred by pursuing claims against the wrong defendant (Trans Union was not a proper defendant) and pursuing claims that were not factually supported long after he received warnings from Trans Union’s attorneys.

Plaintiff appealed to the Sixth Circuit, but it also affirmed the grant of summary judgment against Plaintiff. Trans Union moved to reopen the case to obtain costs and sanctions.

The court explained that the Rule 11 sanctions were proper because the plaintiff’s counsel continued pursuing baseless claims long after it was apparent that the claims lacked merit.

Miller’s original complaint alleged that Trans Union provided Wites & Kapetan with a copy of Miller’s credit report through an undetermined third party. The only support Miller provided for this allegation was the letter Wites & Kapetan sent to her in 2011. The letter contains a footnote that explicitly states that Wites & Kapetan do not have her credit report. (Doc. 1-1.) This singular letter served as the basis of Miller’s complaint. No further investigation seems to have taken place and no other evidence was presented to support the claims against Trans Union. Miller, without any substantive evidence to support the allegation, elected to believe Trans Union had disclosed her credit report in violation of FCRA. Miller and her counsel have thus failed to demonstrate that her claim would likely have evidentiary support after further discovery.

Miller ultimately dropped her original claim against Trans Union, and filed an amended complaint alleging a new claim against Trans Union based on a report that she ordered six months after she brought this lawsuit. Miller’s new claim alleged that Trans Union violated the FCRA by failing to disclose promotional inquiries on a consumer disclosure. (Doc. 41.) Miller’s claim was again factually unsupported. The service agreement that Miller entered into (Doc. 106-4) and the URLs on the report that she received (Doc. 41-1) both show the report was produced by TUI. Thus, Miller either failed to recognize or deliberately ignored the fact that Trans Union and TUI are separate legal entities. Miller then failed to recognize that what she had requested was not a consumer disclosure covered by § 1681g of the FCRA. These are significant investigatory failures on the part of Miller’s counsel.

Miller also filed three motions against Trans Union that were found to lack any evidentiary support or Plaintiff was found to lack the grounds to object. Plaintiff’s Motion For Sanctions Against Trans Union For Spoliation of Evidence (Doc. 74) and Plaintiff’s Motion To Show Cause Why Trans Union Should Not be Held in Contempt (Doc. 86) were found to lack evidentiary support and were summarily denied. Plaintiff’s Motion to Strike the Deposition of Michelle Simms (Doc. 95) was denied because the Court ordered Simms to testify about TUI documents and procedures at Plaintiff’s request; Plaintiff, therefore, had no grounds to strike the same testimony. (Doc. 101.)

Additionally, Miller and her counsel were put on notice by Trans Union that there was no factual basis for the claims made against the company. Trans Union contacted Miller’s counsel in June 2013 (Doc. 106-1), February 2014 (Doc. 106-3), and August 2014 (Doc. 106-4) and informed them that the claims in the complaint and the amended complaint were meritless. While the Court would not expect plaintiff’s counsel to blindly accept a defendant’s assessment of plaintiff’s case, the Court would expect such repeated assertions to prompt an investigation into the facts underlying plaintiff’s claims. Miller deserves some credit for ultimately dropping her original claim against Trans Union, but she then replaced it with a claim equally without merit. Miller never agreed to dismiss that claim against Trans Union nor sought leave to add TUI as a defendant—even though Trans Union notified her counsel that TUI was the proper defendant.

The primary goal of Rule 11 sanctions is to deter baseless accusations that lack factual support. Yet there is also a duty on the party seeking sanctions to mitigate their damages and avoid unnecessary filings. Trans Union arguably met this obligation by sending Miller three separate letters detailing the distinct lack of factual support for their claim and warning of Rule 11 sanctions. On the other hand, Trans Union moved for reconsideration of the Court’s order granting Miller leave to amend, but did not move to dismiss the Amended Complaint. (Doc. 46.) In the order denying the motion for reconsideration, the Court stated that “Trans Union remains free to file a motion to dismiss the Amended Complaint should it believe such a motion is appropriate.” (Doc. 58.) All considered, the Court finds that Trans Union pursued a resolution of this case in a reasonable manner. It would be inaccurate to suggest that Trans Union sat on its hands and accrued defense costs while it built a case for Rule 11 sanctions; it tried to reason with Miller’s counsel, but to no avail.

The court also found that the attorney violated Section 1927 by needlessly multiplying the proceedings.Source:

Comment: the case is a reminder that, in federal court, a letter from opposing counsel that a claim is baseless, must be taken seriously.

Source: Miller v. EXPERIAN INFORMATION SOLUTIONS INC., Dist. Court, SD Ohio 2016 – Google Scholar

Edward X. Clinton, Jr.

The End of Prenda – Sanctions and Contempt Order Affirmed by Seventh Circuit


Duffy v. Smith :: Seventh Circuit :: US Courts of Appeals Cases :: US Federal Case Law :: US Case Law :: US Law :: Justia.

This ruling, affirming the sanctions and contempt orders against the Prenda Lawyers, was no surprise as the oral argument went poorly for them. See my post of April 8, 2014. The ruling may prove to be a troublesome one for lawyers who are named in sanctions motions after they withdraw form litigation. I have only discussed the issues that are important to the appeal and to lawyers. I have ignored many of the arguments and defenses raised by the Prenda Lawyers.

Prenda Law, according to the Seventh Circuit, consisted of Paul Duffy, John Steele and Paul Hansmeier. All three were Illinois lawyers. Prenda would file a lawsuit against unknown individuals and would then subpoena their internet provider for information identifying particular individuals. Then, Prenda would contact those people and would claim that they had wrongfully downloaded pornographic movies and would extract settlements from them.

In this particular case, Lightspeed Media Corporation, which operates pornography sit, sued Anthony Smith and other defendants. The case began in the State Court, where Lightspeed claimed that one John Doe defendant (identified through his IP address). Lightspeed then identified 6,000 other IP addresses and then served subpoenas on two internet service providers (ISPs) seeking the identity of the owner of each of the 6000 IP addresses. In the state court the ISPs refused to turn over the information. The trial court denied the motion to quash the subpoenas. The ISPs appealed and the Illinois Supreme Court held that the trial court erred by refusing to quash the subpoenas.

On August 3, 2012, Lightspeed amended the complaint and claimed that the ISPs were co-conspirators of those defendants who had wrongfully downloaded the pornographic movie. In the amended complaint the defendant John Doe’s name was revealed to be Anthony Smith.

On August 9, 2012, the ISPs removed the case to the District Court for the Southern District of Illinois. Lightspeed filed emergency motions to require the ISPs to produce personally identifiable information for each of the 6,000 alleged co-conspirators. The district judge denied the motion. The ISP defendants then submitted a motion to dismiss the case and a motion to stay discovery (stop discovery) while the motion to dismiss was pending. See Opinion at 4.

In November 2012, Hansmeier moved to withdraw. In March 2013, Steele moved to withdraw.

In May 2013, a California district court entered a rule to show cause against Duffy, Hansmeier, and Steele. That court also made a finding that Duffy, Hansmeier and Steele controlled Prenda Law. See Seventh Circuit Opinion at 5.

After the show-cause order was entered in California, Prenda moved to voluntarily dismiss the Lightspeed case. After the voluntary dismissal was granted, Smith (within 14 days) moved for sanctions pursuant to 28 U.S.C. Section 1927. Duffy responded but Hansmeier and Steele did not file responses. In October 2013, the district court granted the motion for sanctions. The lawyers moved for reconsideration. The court granted the request for a rehearing.

Then the ISPs became involved. They sought attorney frees from Steele, Hansmeier and Duffy.  After rehearing, the district court upheld its original order of sanctions to Smith and granted the ISP’s motion for sanctions. The district court assessed fees against the lawyers jointly and severally. The district court found that the lawsuit was frivolous and that the litigation “‘smacked of a bully pretense.'” The district court also ruled that the lawyers “were engaged in ‘abusive litigation…simply filing a lawsuit to do discovery to find out if you can sue somebody. That’s just utter nonsense.'” Opinion at 17-18.  The three lawyers then appealed.

Were Steele and Hansmeier given notice and an opportunity to be heard?

Steele and Hansmeier argued that they did not receive notice of the motion for sanctions. The Seventh Circuit disagreed because, first even if they did not have notice of the original motion, “the defect was cured when the district court granted rehearing on the sanctions issue.”  Second, Steele and Hansmeier did have notice of the original motion. The court explained that “[g]iven the close connections among the lawyers, it was reasonable for the court to conclude that service on Duffy would suffice to give notice to Steele and Hansmeier as well.”  This holding is supported by the common address used by the three lawyers and the impression they gave to the outside world that they were a team acting together. The Seventh Circuit also held that Steele received actual notice via email.

Did the Defendants Delay Too Long Before Seeking Section 1927 Sanctions?

Smith’s motion for sanctions was filed 10 days after the case was voluntarily dismissed, which was not too late for the court to lose jurisdiction. However, the ISPs did not seek sanctions until October 2013 (after Smith’s Motion for Sanctions was granted).

Was Joint and Several Liability Appropriate?

The lawyers argued that Section 1927 liability is direct and that it was wrong to hold the lawyers vicariously liable for each others’ actions. Opinion at 24. Here, the Seventh Circuit rejected the argument because the district court held a hearing and held them liable after determining that each one was individually liable.

The Seventh Circuit also affirmed a contempt holding for the failure to pay the sanctions promptly.

Conclusion

This case means the end of the Prenda enterprise and the careers of the lawyers who were involved in this appeal. The case may be more important to future lawyers defending themselves against sanctions motions. Lightspeed means that a lawyer can be sanctioned long after the lawyer withdraws from the litigation. Lightspeed also means that, in the future, there will be requests to sanction both the principal lawyer involved and anyone who helped that lawyer with the case.  The ugly spectre of joint and several liability will be raised again and again in future sanctions proceedings. Most importantly, Lightspeed will probably be read to mean that you can get notice of a sanctions motion by email. (This is also very scary for lawyers).

Thus, the Lightspeed case is a great victory for those who were fighting Prenda Law. They deserve congratulations. However, the case has introduced or reintroduced some scary doctrines into the law of sanctions including (a) sanctions after you withdraw; (b) service by email; and (c) joint and several liability.

Edward X. Clinton, Jr.

www.clintonlaw.net