Delaware Chancellor Politely Denies Sanctions Motion

The court denied a sanctions motion filed when one party moved to reconsider the judgment:

The Defendants move for sanctions against the Plaintiffs, on the ground that the Plaintiffs’ Motion for Reconsideration was “frivolous and appears vindictive” and represents the Plaintiffs’ attempt to mislead the Court.[14] I cannot improve on the wise advice of Vice Chancellor Laster: “lawyers should think twice, three times, four times, perhaps more before seeking Rule 11 sanctions or moving for fees under the bad faith exception.”[15] In my view, the Defendants have thought at least one time fewer here than is optimal. This entire litigation has hardly been a model of civility, or of litigants’ or judicial economy. The Motion for Sanctions is unwarranted, and is denied.

The opinion does not discuss the merits of the sanctions motion in detail, but it appears that the Chancellor was frustrated that a request for reconsideration immediately drew a request for sanctions.

via BRACE INDUSTRIAL CONTRACTING, INC. v. PETERSON ENTERPRISES INC., Del: Court of Chancery 2018 – Google Scholar

A Party Accuses Opposing Lawyer of Fraud on the Court and is Sanctioned.

This was an ill-fated employment lawsuit filed by a former employee against his former employer. The employer obtained summary judgment in its favor. A little over a year later, the plaintiff filed a Rule 60 motion to vacate the judgment on the ground that the defense lawyer had committed fraud on the court. The Seventh Circuit found that the Rule 60 motion was filed too late. Instead, the plaintiff should have challenged the employer’s evidence at the summary judgment stage. The Seventh Circuit also affirmed the grant of Rule 11 sanctions.

The reasoning:

We also review a district court’s grant of Rule 11 sanctions for an abuse of discretion. Northern Illinois Telecom, Inc. v. PNC Bank, N.A., 850 F.3d 880, 883 (7th Cir. 2017). To succeed, parties challenging sanctions need to show that “the district court based its decision on an erroneous view of the law or a clearly erroneous evaluation of evidence.” Id., citing Gastineau v. Wright, 592 F.3d 747, 748 (7th Cir. 2010); see also Fed. R. Civ. P. 11(c).

On appeal, attorney Davis summarizes his factual argument against the sanctions ruling this way: “It is redundant to continue discussing appeals, summary judgments, Rule 60(b) filings. The fact is that Appellant’s attorney did not rush to file a document that goes after the integrity of a fellow attorney.” As for law, he cites a 1993 district court case from Iowa that chastised the lawyer there for engaging in “bickering, haranguing, . . . general interference” and other examples of “Rambo Litigation.” See Van Pilsum v. Iowa State Univ. of Sci. & Tech., 152 F.R.D. 179, 180-81 (S.D. Iowa 1993) (adopting creative response under Rule 37 to discourage such discovery tactics). Neither of these points addresses whether or how the district court in this case abused its discretion in deciding to award sanctions against Davis personally.

We appreciate Mr. Davis’s initial hesitation before leveling fraud accusations at another lawyer. But he then went ahead and did just that, and without presenting any new evidence of fraud. He offered only inferences and innuendo drawn from the original summary judgment record. Rule 11 “requires counsel to read and consider before litigating,” which Davis claims to have done, but it also “establishes an objective test,” U.S. Bank Nat’l Ass’n, N.D. v. Sullivan-Moore, 406 F.3d 465, 470 (7th Cir. 2005) (citation omitted), that asks whether the attorney engaged in “an inquiry reasonable under the circumstances” before filing a motion. Fed. R. Civ. P. 11(b). Davis makes no effort to explain how his investigations of the facts and law underlying the Rule 60 motion he filed were reasonable. The district court awarded sanctions for having to respond to this motion, and Davis has not advanced a coherent argument that shows how this grant was an abuse of discretion. We affirm the decision of the district court imposing sanctions.

via Kennedy v. SCHNEIDER ELECTRIC, Court of Appeals, 7th Circuit 2018 – Google Scholar

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.

Venue Transferred Where Kansas Plaintiffs Sue Missouri Defendants in Delaware

This is a case where the court decided to transfer venue to another district pursuant to 28 U.S.C. § 1404(a). Kansas plaintiffs retained Missouri lawyers to file a fraud lawsuit against another party. The Delaware Court dismissed that case. The Kansas Plaintiffs then brought a legal malpractice action against their former attorneys in Delaware. They argued that since the Delaware District Court heard the first case, it should hear the malpractice case. The court held that venue should be transferred to the District of Missouri where the lawyer maintained offices. The court noted that none of the parties were from Delaware, but the lawyers were located in Missouri. The law of legal negligence was the same no matter what jurisdiction was selected. The witnesses were located in Missouri, not Delaware, Finally, the court could not compel witnesses from Kansas or Missouri to testify in Delware. Result case transferred to the Western District of Missouri.

via Simpson v. WILLIAM DIRKS DAMERON, LLC, Dist. Court, D. Delaware 2018 – Google Scholar

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.