Posts Tagged ‘sanctions’

Sued wrong party, wrist duly slapped

Brooklyn, N.Y. attorney Regina Felton held a judgment against an outfit named United Equities Corp. which she tried to enforce against an entity named United Equities Inc. Attorneys for the latter informed her repeatedly that despite the coincidence of names the two businesses had no connection to each other. Citing the New York courts’ definition of frivolous conduct, trial judge Arthur M. Schack ruled that Felton’s continued refusal to withdraw the action even after it was “crystal clear” that it was mistaken was “completely without merit in law” and “ignored UEI’s good faith attempts to resolve this matter without resort to lengthy and costly proceeding”. Nonetheless, he granted UEI only about half the $25,000 in attorneys’ fees it sought and “declined to add sanctions, calling the $13,287.50 in costs a ‘sufficient penalty.'” Maybe UEI would have been better off settling her demand for $10,000 at the outset. (Mark Fass, “Lawyer Ordered to Pay Fees After Pursuing ‘Frivolous’ Suit”, New York Law Journal, Jul. 9). Felton, whom New York law blogger Andrew Bluestone describes as “well known” (Sept. 27, 2007; more at Feb. 14, 2007) won notice a couple of years ago when she unsuccessfully argued before the Tax Court that she did not “consider herself” an employee of the law offices of Regina Felton, PC. (RothCPA, Sept. 18, 2006).

Cyrus Sanai: Kozinski investigation “is part of a litigation strategy”; second Sanai v. Saltz sanctions order

Cyrus Sanai tells Patterico that his triggering an investigation of Judge Alex Kozinski’s web site is all “part of a litigation strategy” but does not reveal what the other two steps of his three-step strategy is, or more insight into his strategic genius.

Read On…

“People want to find out what the other person is Googling”

And so the divorce case winds up generating massive demands for hard drive contents and other electronic discovery. Draconian spoliation sanctions, as exemplified in the Morgan Stanley-Perelman and Zubulake-UBS Warburg cases, make a potentially fatal trap for the unwary:

Defense lawyers complain that their clients often are forced to supply voluminous information at great cost with little benefit. And because there is so much more information potentially subject to a discovery order, the chances are greater that a client might violate the order by inadvertently deleting data.

“Does this enhance justice? Not usually,” said Tess Blair, a partner at Morgan, Lewis & Bockius L.L.P., who heads the 1,350-lawyer firm’s electronic-data-discovery unit. “It becomes a weapon in many cases.”

(Chris Mondics, “Ediscovery profoundly changing lawyering”, Philadelphia Inquirer, Jun. 8).

Judge Holds Trial Firm Liable for Fees

U. S District Court Judge Robert Matsch recently got so infuriated by the conduct of McDermott, Will and Emery attorneys Terrance McMahon and Vera Elson that he overturned a jury’s $51 million verdict, then ordered the lawyers to pay the fees and costs of the opposing lawyers, a sum that could total several million dollars. (Denver Post, Feb. 25)

From the decision (Medtronic Navigation, Inc. v. BrainLAB Medizinische, 2008 WL 410413):

In essence, the response from the plaintiff and MWE, through new counsel, is that the Court had the obligation to stop any trial conduct that stepped over the line of zealous advocacy. In short, they argue that they should not be held responsible for what they were able to get away with during the trial presentation. The adamant denial that there was any abuse of advocacy in this case is in disregard of what this Court has already concluded and displays the same arrogance that has colored this case almost from its inception. Throughout these proceedings Medtronic and the MWE lawyers have demonstrated that when they are faced with adverse court rulings, they proceed undeterred, with only superficial observance of the court’s determinations. Such conduct supports the conclusion that after the Markman rulings, Medtronic’s primary objective in pursuing this litigation was to put economic pressure on its competitor in the market.

Medtronic’s counsel proceeded cavalierly, with reckless indifference to the merits of Medtronic’s infringement claims. The continued prosecution of a claim after its lack of merit has become apparent warrants sanctions under § 1927. At trial, MWE’s conduct was in disregard for the duty of candor, reflecting an attitude of “what can I get away with?” Throughout the trial, the MWE lawyers artfully avoided the limitations of the patent claims and created an illusion of infringement. They did so with full awareness that their case was without merit.

Frivolous — but honest about it

No matter how absurd a lawsuit is, the plaintiff usually has an elaborate, ingenuous theory to explain why he deserves to be compensated for injuries caused in some convoluted, indirect way by the nefarious defendant, and the obligatory disclaimer about the case “not being about the money” is usually tacked on. Usually. And then there’s James Schlimpert, president of Oklahoma-based Garage Storage Cabinets LLC.

When asked why he brought a suit against a competitor (Don Mitchell/MGCS) for misappropriation of trade secrets and tortious interference with his company’s dealer contracts, he explained, forthrightly:

When deposed, GSC President John Schlimpert testified that his company held no trade secrets, had no exclusive dealer contracts, and had filed the lawsuit for the sole purpose of putting MGCS out of business.

“I am amazed in some respects that the plaintiff said that, and he said it more than once, said his purpose was to put them out of business,” reads the court record issued by the District Court of Payne County, Honorable Larry Brooks, judge. “I think, under the plaintiff’s stated purpose, he was bringing it just to be vexatious to the defendants. I think it’s vexatious litigation.”

Wow. Still, for anybody who wasn’t already convinced by the Roy Pearson case, the history of the suit illustrates the difficulty courts have in protecting defendants from frivolous suits.

Because the complaint, on its face, seemingly stated legitimate causes of action, the only way for Mitchell to establish that the suit was frivolous was to conduct discovery and take the deposition of the plaintiff. Then Mitchell had to get lucky; if Schlimpert hadn’t foolishly admitted the fraudulent nature of his suit, the court would almost certainly treated the suit as legitimate. (Mitchell could still have won, but wouldn’t have gotten sanctions.) Once Mitchell got lucky, he had to make a motion to the court to have the case thrown out.

Then, after having the case thrown out, Mitchell had to make a separate application to the court for sanctions — he actually botched this procedure, but the court let the issue slide — and then had to participate in a hearing to try to establish how much those sanctions should be. All of that cost more money, more attorneys fees, with no guarantee that these costs would be recouped. Indeed, in this case Mitchell asked for $49,300, and the judge awarded only $31,500, because Schlimpert was successful in finding an expert witness to convince the judge that the lower number should have been sufficient to beat his frivolous case.

Moreover, the judge refused to penalize the plaintiff’s lawyer, finding that just because Schlimpert was acting in bad faith didn’t mean his lawyer was.

And then, after all that, Schlimpert appealed. Finally, this month, the appeals court upheld the trial court’s decision. And now Mitchell has to go back to the trial court, after having spent another $8,000 on the appeal, and has to hope the judge will make him whole.

P.S. In case you were wondering: this suit was filed in May 2003. It took 17 months from the time the suit was filed until the time the judge ruled in favor of Mitchell. It took another 17 months for the judge to award sanctions to Mitchell. After Schlimpert appealed, it took yet another 17 months for the appeals court to rule. In other words, more than four years elapsed. But — as mentioned — it’s still not over, because now Mitchell has to return to the trial court, to be awarded fees because of Schlimpert’s appeal.

Serial spam litigation backfires on plaintiff

I think it’s fair to say that serial spam litigation is less lucrative than serial ADA litigation. Walter discussed the setback suffered by plaintiff James Gordon (June 2007), in which a federal court ruled that Gordon, who makes his entire living using anti-spam laws to sue emailers, had no legitimate claims because he had not suffered any damages (and indeed, could not, since his only “business” was filing lawsuits for receiving spam).

The court was clearly disgusted by Gordon and his attempt to manipulate the CAN-SPAM act to extort millions of dollars from an emailer, because not only did it rule against him, but this week it awarded attorneys’ fees to his victim. Now, regular readers of Overlawyered know that one of my pet peeves is that even when courts order sanctions, they often award mere token amounts which are inadequate to deter plaintiffs or reimburse defendants for their troubles. That wasn’t the case here; the court awarded $110,440 in fees and costs to the victorious defendants. (This was actually significantly less than the defendants had requested — half a million dollars — but the court found that this was grossly inflated and not substantiated by the defense counsel’s own billing records. Still, $110,000 is nothing to sneeze at.)

So this case provides lessons for both sides about being greedy:

  • If you’re going to try to become a professional plaintiff, try to suffer actual damages — if possible, physical damages — rather than demanding millions of dollars for receiving emails. If you insist on suing without having been injured, at least try to be a sympathetic plaintiff in a wheelchair who can’t use public restrooms, rather than being a guy who sits around his living room in his pajamas looking at spam.
  • If you’re up against an unsympathetic professional plaintiff, don’t squander the court’s goodwill by demanding far more in legal fees than you’re entitled to. And if you’re going to pad your fee request to the court, at least make sure that the bills you submit to substantiate your demands actually match the numbers you’ve told the court. Judges don’t like it when you claim that you spent 2,000 hours and your own records show that you’ve only spent 1,500 hours. The judge was so annoyed here that after he re-calculated the legitimate bills, he determined that they were grossly overinflated and slashed them by an additional 70%.

“It’s ‘my policy to follow the ethical rules'”

Last week, Ted posted a court decision about a lawyer/client team who have turned the Americans with Disabilities Act — in theory, a law designed to protect actual consumers — into a full-time career, patronizing businesses for the specific purpose of being able to sue them. Not all such lawyer/client teams bother to even take the step of patronizing the businesses, however; some just skip the damages and go right to the extortion, hoping the defendants will pay rather than spend the money to defend themselves.

Many times, their business model works, but occasionally, it backfires, as it did last week on serial ADA litigant Theodore Pinnock. (Technically, Pinnock is the attorney, not the plaintiff. But why split hairs? The plaintiffs, Delores Jackson and the imaginary organization she “represents,” the Association of Women with Disabilities Advocating Access, are just fronts for Pinnock.) On Friday, a federal judge in San Diego sanctioned Pinnock, ordering him to take an ethics class and pay $15,000 in attorneys fees to Marcos Mout, a defendant he had sued last October. Mout owned a convenience store, and was sued because the store was allegedly inaccessible to the disabled. Well, not quite:

Jackson, who uses a walker, said she had “researched” the store and had photographic evidence of numerous violations. In the complaint, she said she had intended to patronize the store but would have been thwarted by problems with signage, the entrance door, interior paths, counter height, parking and the restroom, among many things.

The businessman’s attorney countered that the convenience store wasn’t even open to the public at the time Jackson was allegedly denied access, having been seriously damaged in December 2004 by a flood.

Mitch Wallis, attorney for convenience store owner Marcos Mouet, also told the court that the small store, which remains shuttered, didn’t even have a public restroom. Jackson’s lawsuit also alleged that interior pathways weren’t wide enough, but Mouet’s attorney noted that the shelves had been pushed against the wall to fix the flood damage.

Yes, but aside from those issues…

Incidentally, the Bizarro-Overlawyered crowd will tell you that frivolous suits are easily, quickly, and cheaply disposed of by the courts; this case illustrates yet again how badly they misunderstand the nature of the legal system. Because the suit against Mout’s convenience store made superficially legitimate allegations, it cost Mout at least $15,000 to defend the suit. (He actually claimed legal costs of $38,000 in making his motion for sanctions, but the court found that $15,000 was a more reasonable figure.) And that was for a suit that lasted “only” five months.

Previous coverage of Pinnock: Apr. 2006

There’s no such thing as cheap litigation

In response to my post below about inadequate sanctions in the Econo Lodge case, Stephanie Mencimer asks how the costs of frivolous litigation can be so oppressive, how it can cost millions of dollars to defend against them, given that — in her view — the defendants can just hire paralegals to prepare boilerplate responses.

Well — as Ted points out in the comments to her post — I had said “thousands,” not “millions.” But the bigger problem with what she wrote is that she dramatically underestimates the burden and cost of litigation. We’ll put aside the fact that her proposal — to have paralegals file boilerplate responses — would constitute legal malpractice on the part of the defense attorney. Of course it’s cheaper when cases can be decided (as Mencimer suggests) “with no discovery, no depositions and apparently not even a court appearance” — although it’s not clear from the Econo Lodge case that in fact there were no court appearances. But other cases, even ones that are completely meritless, require a lot more before the defendant can be vindicated.

Case in point: Kinderstart v. Google. The complaint was yet another attempt to sue Google over its rankings of web pages for search results. (Another suit along those same lines: Mar 1) Only part of the case was frivolous (the federal judge awarded sanctions against the plaintiff on two points (PDF of sanctions decision), but the entire case was meritless, as the court ruled (PDF). Google is a private business, and the courts keep rejecting the notion that lawyers should decide how Google can rank websites. Every claim made by Kinderstart was resoundingly rejected; Eric Goldman has the gory details.

But even though the case was dismissed before discovery even began, that didn’t make it — contrary to the beliefs of so many anti-tort reformers such as Mencimer — quick. In fact, it took a full year to dismiss the case (and there’s always the possibility of appeal). So why, if it was such a loser, did it take so long? Because after the court dismissed it the first time, the judge allowed the plaintiffs to amend the complaint; in all there three versions of the complaint filed. Google had to respond to each one, and there were in-court hearings each time Google moved to dismiss the case. Google also had to file an anti-SLAPP motion, a motion to strike the complaint, and a motion for sanctions.

Google “won” this case, and even won a yet-to-be-calculated sanctions award. But in the end, it took a year and Google spent, conservatively, tens of thousands of dollars to do it, even without discovery. Now, I don’t expect every non-lawyer to realize how long and expensive the legal process is — but Mencimer holds herself out as a pundit on tort reform; you’d think she’d have a little more of a sense of how the system works.

(Previous mention of this case, Oct. 2006.)

Patent troll, meet Rule 11

Just sending out batches of letters claiming infringement and demanding money may no longer be a workable business plan:

Based in the British Virgin Islands, Eon-Net is run by an evangelical minister-cum-inventor, who holds several patents (including one on a device for collecting “canine waste”). In March 2005 the company filed a patent suit in New Jersey against Flagstar, a $16 billion savings bank based in Michigan. The bank was one of 32 companies sued separately by Eon-Net for infringing a patent that, the company claims, covers technology that allows online shoppers to enter information into Web sites and have it transferred to the Web retailer’s computer. Eon-Net, which also has pending litigation against JetBlue Airways and Liz Claiborne Inc., had successfully extracted settlement money from ING Bank and Sony Corp. over the same patent.

Eon-Net’s enforcement method involved filing a complaint followed by a letter offering a settlement ranging from $25,000 to $75,000.

Flagstar decided to fight the suit, and its attorney, Melissa Baily of Quinn Emanuel, noticed that Eon-Net’s lawyers “had used nearly identical complaints and demand letters in all 32 suits,” suggesting a lack of careful advance investigation. Although Rule 11 sanctions are especially hard to obtain in the Ninth Circuit, Western District of Washington Judge Marsha Pechman agreed that the suit was both baseless and made without reasonable inquiry and, after ruling in favor of Flagstar on summary judgment in the case itself, ordered Eon-Net and its attorney, Jean-Marc Zimmerman, to pay the bank’s defense costs, estimated at more than $100,000. (Xenia P. Kobylarz, “Patent Trolls Put on Notice Over Generic Infringement Letters”, IP Law & Business, Dec. 14).

December 2 roundup

  • Tennie Pierce update: only 6 out of 15 members vote to override mayor’s veto of $2.7M dog-food settlement (Nov. 11). [LA Times]
  • Reforming consumer class actions. [Point of Law]
  • Judicial activism in Katrina insurance litigation in Louisiana. [Point of Law; Rossmiller; AEI]
  • What will and won’t the Seventh Circuit find sanctionable? Judge Posner’s opinion gets a lot of attention for snapping at the lawyers, but I’m more fascinated about the parts where the dog didn’t bark, which isn’t getting any commentary. [Point of Law; Smoot v. Mazda; Volokh; Above the Law]
  • Montgomery County doesn’t get to create a trio-banking system. [Zywicki @ Volokh and followup]
  • “The Hidden Danger of Seat Belts”: an article on the Peltzman Effect that doesn’t mention Peltzman. [Time; see also Cafe Hayek]
  • Pending Michigan “domestic violence” bill (opposed by domestic violence groups) criminalizes ending a relationship with a pregnant woman for improper purposes. [Detroit News via Bashman; House Bill 5882]
  • Did Griggs causes distortion in higher education? I’m not sure I’m persuaded, though Griggs is certainly problematic for other reasons (e.g., POL Aug. 12, 2004). [Pope Center via Newmark]
  • The Kramer cash settlement. [Evanier]
  • Jonathan Wilson gives Justinian Lane a solid fisking on loser pays. [Wilson]
  • Speaking of Justinian Lane, for someone who says he was “silenced” because I didn’t post a troll of a comment on Overlawyered, he’s sure making a lot of whiny noise. Hasn’t corrected his honesty problem, though. [Lane]
  • The stuff Gore found too inconvenient to tell you in “An Inconvenient Truth.” [CEI]
  • Islam: the religion of peace and mercy, for sufficiently broad definitions of peace and mercy. [Volokh]
  • One year ago in Overlawyered: photographing exhibitionist students at Penn. Jordan Koko doesn’t seem to have gone through with the threatened lawsuit. [Overlawyered]