sanctions

Subscribe to sanctions

Filing suit in federal court is different. Federal court differs from state court in some key respects. One of these respects concerns attorney withdrawal. In state court, most judges would quickly grant a motion to withdraw. Not so in federal court. In GDC Technics, Ltd. v. Grace, No. 15-CV-488-ML, the Defendant’s counsel asked to withdraw. The motion to withdraw indicates the law firm would suffer financial hardship if the motion was not granted. That assertion suggests the firm was not being paid by the Defendant. The Plaintiff opposed the motion because 1) the trial date was about two months away, and 2) there was a corporate co-Defendant. J.R.G. Design, Inc. cannot appear in court without an attorney. Since Mr. Grace has not paid his current lawyer, argued the Plaintiff, then it is unlikely he would find a new lawyer. Thus, the corporate Defendant would have to be dismissed from the lawsuit, or a default judgment would have to be entered against it.

The Judge agreed. In a Feb. 10, 2017 decision, the court found that if granted, the status of the corporate defendant would be very problematic. Mr. Greace himself could appear in court pro se, but the corporate defendant could not. The court noted the law firm had represented the Defendant for well over a year. It seemed unlikely that the Defendant would be able to hire new counsel now.

A couple of months later, the same law firm, the Snell Law Firm, asked again to withdraw, citing some $44,000 in unpaid bills. The law firm noted that the client appeared to have funds with which to hire new counsel. The claims against Mr. Grace had been dismissed. The only remaining Defendant was J.R.G. Design. And, noted the Snell law firm, the parties had entered into a Joint Notice of Settlement. All the corporate Defendant had to do was settle the case. And again, the Plaintiff opposed the motion. The Court agreed with the Plaintiff. Finalizing a settlement agreement and transferring the disputed property would not require much time from the law firm. The Court did note that the conduct of Mr. Grace did appear to have caused additional work for his lawyers. So, if the remaining work became too much, the Court agreed it would re-hear the motion to withdraw. The Court noted that the Plaintiff had filed a motion seeking sanctions due to conduct of Mr. Grace. The Court seemed to be signaling its willingness to release the law firm if Mr. Grace mis-behaved.

That is the different between state and federal court. Bad behavior will have consequences much sooner in federal court. Another lesson appears in this decision, playing nice counts in lawsuits.

 

The trial for the “toughest sheriff” has concluded. I previously wrote about that trial here. The “toughest sheriff” has chosen a strange defense. As his trial reached its conclusion, his attorney argued that the “toughest sheriff” did not have a good lawyer. The lawyer did not explain the judge’s ruling to him, for eighteen months. The “toughest sheriff” did not know he could no longer enforce a ban on unlawful immigration. The defense presented some deputies who testified no one told them they could not enforce the federal ban on unlawful immigration.

The lawyer argued that the judge’s order was ambiguous, hard to understand and it was politically motivated. Its a problematical defense. One of his former lawyers testified, but apparently said little more than that Judge Snow’s order had some ambiguity in it. I cannot imagine any lawyer would testify s/he did not explain to the client what the judge wanted them to do, especially in a high profile case like Sheriff Arpaio. Too, the sheriff was and still is an experienced political operative. He has successful run for office for some 30 years. One would assume he can read a judge’s order and understand it. If he does not understand it, he knows how to seek clarification.

This is a high risk defense. It stretches the limits of credibility. The “toughest sheriff” did not testify. Really, he is the best person to advance a defense based on what he understood or did not understand. I suppose he was not tough enough for court. See CNN news report here.

In litigation, social media has become a very hot issue. Many parties think they can obtain that final, critical piece of evidence from social media. One example is Facebook. Many employers involved in a lawsuit request the employee’s Facebook posts for a certain time period. The rationale is that a victim of discrimination cannot legitimately claim to be depressed if he posts pictures of himself drinking a cool one at the local pub. Or, some defendants will argue, if the plaintiff posts something about being upset with his family or pet dog, then the employer can use that post to argue he was upset about things other than being fired.

Isiah Lester was involved in a  wreck when a truck owned by Allied Concrete Company swerved into his lane and inflicted multiple injuries to him. The collision killed his wife. Mr. Lester sued. Trial was held and Isiah Lester was awarded $6.2 million. His wife’s parents were awarded money, as well. Sometime after the collision but before trial, Mr. Lester posted a picture of himself on Facebook. In the picture, he is wearing a shirt saying, “I love hot moms” and drinking a beer.

Later, after trial, the defendant apparently learned about Mr. Lester’s Facebook account. The defendant, Allied Concrete Company, sued Mr. Lester and his lawyer for among other things, spoliation of evidence. The next day, the plaintiff’s lawyer told his paralegal to tell Mr. Lester to “clean up” his Facebook page. The paralegal emailed the Mr. Lester, asked him about the picture, and told him to delete other pictures. The plaintiff avoided producing any information about the Facebook account. At Mr. Lester’s deposition, he was evasive. Facebook was still new in 2010 and 2011. Perhaps, they thought they could get away with trying to hide the account.

When the defendant pressed for the Facebook postings, the lawyer at first claimed the Facebook account did not exist. Mr. Lester deleted the account. Later, he re-activated the account, but did delete the pictures. The defendant subpoenaed the Facebook account records and eventually obtained all the pictures. The lawyer did not list the email to his paralegal in the privilege log. It looked like he was trying to hide that email from the Defendant. But, in the end, it was also uncovered.

The defendant sought sanctions. The court found that the plaintiff’s lawyer had intentionally omitted his paralegal’s email from the privilege log. The lawyer tried to blame the omission on the paralegal. The court found the plaintiff:

  • spoliated evidence by deleting his Facebook pictures,
  • tried to mislead the defendant by deactivating his Facebook account, and
  • lied in his deposition about deactivating his Facebook account.

The court sanctioned the plaintiff in the amount of $542,000 and his lawyer in the amount of $180,000. The award was tied to the defendant’s legal costs in pursing this information. The court referred the lawyer to the state bar for ethical violations. The court also referred the plaintiff to the prosecutor for his perjury in a civil matter.

This was the first case to sanction a party for trying to hide social media evidence. See the decision in Allied Concrete Co. v. Lester, 736 S.E.2d 699 (Va. 2013) here. The plaintiff and his lawyer went to a lot of trouble to hide the words of one t-shirt. It may well have turned out that he could have explained that t-shirt to the jury and assured them he was suffering emotionally when he drank that beer. Perhaps, that was his first social occasion since the accident. We will never know the full story. But, he and his lawyer made it much worse than it had to be.

In federal court, sanctions are a real possibility. The parties need to behave themselves and act in a professional manner. That even applies to a settlement conference. In Chen v. Marvel Food Services, Inc., No. CV-15-6206 (E.D. N.Y. 11/21/2016) (FLSA), the court scheduled a settlement conference. The parties were required to come to court and discuss settlement. Under the local rules, that means both parties had to comply with certain deadlines in submitting settlement offers and responses. The plaintiff submitted his settlement offer weeks prior to the conference. But, minutes before the conference was to start in court, the plaintiff doubled his settlement demand. He explained that he had re-evaluated his case. The defendant was unable to proceed with the conference because he had come with authority to settle based on the prior amount.

The Defendant filed a motion for sanctions. The plaintiff did not oppose the motion, but he did move to strike the motion because it contained the prior settlement demands. The plaintiff argued that the motion for sanctions contained confidential information. The court denied the motion to strike. The court noted this was an action based on the Fair Labor Standards Act. Therefore, the ultimate settlement amount was not confidential. The court then found that in doubling his settlement demand just minutes before the conference was to start, the plaintiff acted in bad faith. It sanctioned the plaintiff $1,000, which were the expenses of the defendant’s lawyer for that day. See the decision here.

ruff
Wheelchair

Howard Cohan visits many public establishments. Mr. Cohan is restricted to a wheelchair. He is disabled. But, he visits these public establishments in Florida to see if they are accessible to persons with disabilities. Many restaurants, stores and motels get nervous when they see him rolling toward their front door. See Cohan v. Southeastern Hotels Ltd. Partnership, et al, No. 3:14-cv-393 (N.D. Fla. 6/26/2015), in which he sued some two dozen different motels. See an order here in which instance he could not attend court due to medical treatment. According to one report, he has filed some 1200 lawsuits against non-compliant businesses.

He identifies himself as a “tester.” He tests these places to see if they comply with the ADA. The state of Texas just recently tried to pass a statute limiting the recovery for testers like Mr. Cohan. But, Mr. Cohan is genuinely impaired. And, he genuinely wants businesss to comply with the ADA. Speaking from experience, in some parts of my neighborhood, there are not enough sidewalks. Fredericksburg Road inside Loop 410 lacks sidewalks. So, one young man who uses a wheelchair is forced to travel in the busy street. He wears a huge cowboy hat, and has a tall bicycle flag attached to his chair to make himself more visible. Yet, just a few weeks ago, he was struck by a car. If you are in a wheelchair or suffer some impairment, the concerns of Mr. Cohan are quite genuine.

In Cohan v. Arvilla Motel, Inc., No. 8:15-cv-2174 (M.D. Fla. 1/18/2017), the court declined to award sanctions against Mr., Cohan after he dropped a lawsuit soon after filing it. The court noted rightly that Mr. Cohan has a genuine disability. He visited one motel as a “tester” with an ADA expert and found some violations. The court found that just because Mr. Cohan’s “calculated” presence on the property and his stated claim to return as a “tester” and using a “form” complaint that was not well drafted do not equate to bad faith. He might have failed to prevail on all his claimed violations, but it is apparent from the expert’s report and the photographs, that there was reasonable basis in law and in fact to support the allegations in his Complaint. See the decision here.

The court noted that it reached the same result in another lawsuit field by Mr. Cohan, Cohan v. Island House Resort Hotel, Inc., No. 8:15-cv-21-8 (M.D. Fla. 1/20/2017). Mr. Cohan does stay busy.

At least one news report suggests Mr. Cohan is motivated to sue by greedy lawyers. See a local Florida news station news report. But, the most the plaintiff can sue for is to rectify the barrier and for attorney’s fees. I do not know what Mr, Cohan’s lawyers are seeking as attorney’s fees, but the sooner the defendant settles, the lower the amount of attorney’s fees.

Courthouse

Most lawyers avoid discovery sanctions like the plague. Yet, some parties accept the risk. One recent sanctions award amounted to $2.7 million. In a lawsuit entitled Goodyear Tire & Rubber Co. v. Haeger, the U.S. Supreme Court heard an appeal regarding that very lag sanction award. Justice Elena Kagan ruled in a unanimous opinion that the amount was too large. It exceeds the fees incurred by the wronged party due to Goodyear’s discovery abuse.

The parties had reached an agreement to settle the lawsuit when the plaintiffs learned that Goodyear had failed to produce the results of a tire test. The Arizona judge awarded sanctions based on the legal fees incurred since the date when the defendant failed to produce the requested information. The Supreme Court court, however, said that was error. The amount of the fees should be based on fees incurred due to the discovery abuse. The higher court required a “But for” standard that looks at the expenses incurred due to the discovery abuse. The court asks what would have been incurred but for the discovery abuse.

The plaintiffs responded that $2 million in attorney fees were incurred after the abuse was discovered. The parties would have settled otherwise, they argued. But, the Supreme Court noted the district court awarded $2 million in fees if the $2.7 million was overturned, indicating the district court did not believe the $2.7 million was directly due to the discovery abuse. The federal district court would have to reconsider its $2 million contingent award in night of the Supreme Court ruling. See ABA Bar Journal report.

Courthouse

Yet another challenge to arbitration is found in the class action complaint against Uber, the ride sharing platform. The case is known as Meyer v. Kalanick and Uber Technologies, Inc., No. 15-CV-9796 (E.D. N.Y. 7/25/16). While the ruling on class action status will break new ground, the ruling on investigating the plaintiffs’ counsel breaks new ground of a different sort. In this matter, the defendant’s General Counsel was quite upset about the suit. He called the Chief Security Officer for the company and asked what they could learn about the plaintiffs and the plaintiffs’ counsel. The Chief then forward the email to Uber’s Director of Investigations. The Director responded simply by asking if this needed to be done in-house or out-sourced. The Director of Investigation was not troubled by the possible ethical issues of such an investigation. The Chief replied, just keep it under the radar. Uber then hired an outside investigator to look into the background of the plaintiffs and their counsel.

It is common for a defendant to investigate a plaintiff or a set of plaintiffs. It is quite unusual, so far as I know, to investigate the plaintiff’s attorney. Yet, that is what Uber did. The plaintiff law firm became aware of someone asking questions. The lawyer asked Uber’s lawyer if the company was investigating him. Uber’s lawyer denied it, at first. Later, the Uber attorney admitted they were investigating the Plaintiff’s attorney. The judge who was presiding over the case not happy. Within a week of learning about the investigation, he allowed the plaintiff law firm to depose the principals, the investigator and the Director of Investigations. The investigator misrepresented himself to acquaintances of the plaintiff and the attorney. He lied about who we was so he could ask questions about them. The investigation firm tried to cloak its investigation materials in work-product privilege. The court said no.

Uber tried to argue that its investigation was to make sure the plaintiff was not a safety threat to Mr. Kalanick. The judge was “profoundly” skeptical about that claim. The judge was concerned with the investigation of both the plaintiff and the plaintiff’s attorney. The investigation of the both persons went into everything from living arrangements, to family life to career prospects. The court pointed out there is a “crime-fraud” exception to the work product privilege and the attorney-client privilege. The deceptive nature of the investigation meant Uber engaged in fraudulent, if not criminal conduct. When investigating the attorney, the investigator claimed he was reviewing top “up and coming” labor lawyers or conducting real estate market research for a client. Regarding the plaintiff himself, the investigator claimed to be investigating environmental researchers. The plaintiff was a college professor.

The court pointed out that in acting for Uber, the private investigator was acting for the General Counsel. It does violate the code of ethics in New York , as in most states, for a lawyer to condone or employ deceptive practices in investigating a matter. The court added that litigation is by definition a truth-seeking endeavor. It would contradict this truth-seeking aspect to engage in deceptive practices. The private investigator firm tried to argue that it was not involved in the litigation. The judge did not take that argument seriously. So, the judge denied the motion of Uber and the private investigator firm to keep these investigation materials privileged.

As relief, the judge agreed that any information collected by the investigation could not be used during the lawsuit, and the court enjoined any further investigations of any persons involved in the lawsuit. The plaintiff did seek sanctions, but the parties resolved that issue in a private agreement. That probably means they agreed on some dollar value for the Plaintiff firm having to pursue this motion. But, in the end, the court bemoaned the dismal state of legal process that would lead to this sort of an investigation. As the court noted at the outset of its ruling:

“It is a sad day when, in response to the filing of a commercial lawsuit, a corporate defendant feels compelled to hire unlicensed private investigators to conduct secret personal background investigations of both the plaintiff and his counsel. It is sadder yet when these investigators flagrantly lie to friends and acquaintances of the plaintiff and his counsel in an (ultimately unsuccessful) attempt to obtain derogatory information about them.”

And, in the end, the investigator found nothing it could use. See the court’s ruling here.

 

In federal court, sanctions are a real possibility. A state court can also award sanctions if a lawsuit is found to be frivolous. But, state court judges are more reticent about awarding sanctions than federal judges. In federal court, sanctions rarely occur, but they do occur. The law firm representing the plaintiffs in Elfoulki v. Brannons Sandwich Shop, No. 14-cv-5964 (S.D.N.Y. 6/22/16),  found that to be true. They filed the lawsuit alleging failure to pay minimum wage at a small sandwich shop. They filed suit on behalf of two named plaintiffs and sought collective action certification. The court approved the collective action. But, no other employees opted in to the lawsuit. So, the collective action was later decertified.

The employer then asked for sanctions. The employer did not actually gross more than $500,000 in sales and had not grossed more than $159,000 in sales since it opened about ten months before the lawsuit. Grossing more than $500,000 in one of the way a business qualifies for coverage under the FLSA. The employees would still be covered by the Fair Labor Standards Act if they could show the employees were directly involved in interstate commerce. But, the plaintiffs did not make such an allegation. In accordance with federal rules, the Defendant submitted a notice to the Plaintiffs declaring their gross revenues were way below the $500,000 threshold and invited the plaintiffs to dismiss their lawsuit. The plaintiffs did not respond. The Defendant moved for summary judgment.

To award sanctions, there must be a showing of “objective unreasonableness.” The court does not want to chill any future FLSA lawsuits. So, it asked the question, in a run-of-the-mill wage lawsuit, how would the plaintiffs find out how much the employer had in gross sales? The court suggested the plaintiff firm could have simply looked at the menu and interviewed customers. The law firm could also look at other shop locations, review court filings of similar businesses, review plans for expansion, etc. The court would not limit the inquiry and did not expect the investigation to be perfect. The plaintiff law firm explained various factors that the court found unpersuasive. The defendant had not submitted its “safe harbor” notice until a year into the lawsuit. The lawyers had assumed the employer was interested in settling. The two attorneys could not be sure the owner’s gross income was below $500,000 until he had been deposed. But, the court noted it was the pre-lawsuit investigation that was at issue, not what transpired after they filed the lawsuit.

So, the court sanctioned the law firm $4,000 under Fed.R.Civ.Pro. Rule 11. The defense attorneys had billed its client some $8,500.  See decision here. There are some things every lawyer should be sure of before filing suit. Whether the lawsuit will survive a motion for summary judgment is critically important.

Judge Walter Smith, a Federal judge in Waco, was reprimanded by the Fifth Circuit last year for unwanted sexual advances on one of his employees back in 1998. I wrote about that reprimand here. Judge Smith has now retired. Apparently, the investigation into whether he made advances on other women over the years will continue. A federal judicial conduct committee met last July and found that the sanctions imposed against Judge Smith may not have gone far enough. The lawyer involved in the first complaint, Ty Clevenger, appealed the Fifth Circuit’s sanctions to the judicial conduct committee. As part of his appeal, he submitted the names of other courthouse employees who had been harassed by Judge Smith.

It turns out that during the initial investigation, Judge Smith failed to mention that the lawyer defending him had cases pending in Judge Smith’s court. That poses problems for Judge Smith and his defense lawyer. And, Ty Clevenger has his own legal issues. He has filed numerous complaints against judges and lawyers for years. He maintains a judge blog, dirtyrottenjudges.com. He was sanctioned by a Washington, D.C. judge and fined $120,000. An action to disbar him is pending in the District of Columbia. Judge Smith sanctioned Mr. Clevenger seven years ago for filing a frivolous lawsuit. He fined him $25,000. See Waco Tribune-Herald report.

The frightening thing for lawyers who do what I do is that he granted summary judgment in one of my discrimination cases many years ago. What do victims of discrimination do when the fox is guarding the hen-house?

There is much risk when filing a discrimination lawsuit. There is the simple risk that the plaintiff will lose. Most plaintiffs file their lawsuits based on contingency – meaning the lawyer is paid only if there is a recovery of some sort. So, the lawyer incurs the risk of his/her time or money, or both. But, there is also the risk of being sanctioned. A Pennsylvania lawyer was sanctioned by a United States District Judge for “litigious necromancy . . .  conjured up by specious pleadings.” Donald P. Russo was ordered to pay $115,917 in legal costs for two defendants when he lost his lawsuit. Mr. Russo, said the court, built up his case based on posturing and consistent filings that were based on bluffs. The judge noted the lawyer had a problematic track record, apparently indicating he had filed other questionable lawsuits. See ABA Bar Journal report.

I assume this means Mr. Russo filed a case for which he lacked evidence. Knowing federal court as I do, I suspect Mr. Russo was warned about his problematic lawsuits long before he was sanctioned.