In the case of In re Hermesmeyer, No. 16-11189 (May 2, 2017, unpublished), the Fifth Circuit found no abuse of discretion in the $500 sanction imposed by the district court as a result of the below Q-and-A between the court and counsel:
THE COURT: Okay. Let’s see. There were some—there were two objections filed, and I believe both of them were related to the possibility of a sentence above the top of the advisory guideline range. Did I read those correctly, Mr. Hermesmeyer?
MR. HERMESMEYER: Your Honor, I think they have more to do with legality of whether such a sentence would be permissible or appropriate.
THE COURT: I’m sorry, I was wondering if I’m correct in thinking that both of the objections have to do with the possibility of a sentence above the top of the advisory guideline range. What is the answer to that?
MR. HERMESMEYER: Your Honor, just what I said.
THE COURT: I’m not sure I understand how that answered my question. I’ve asked the question again. Would you please answer the question either yes or no.
MR. HERMESMEYER: Your Honor, I would stand on what I previously said. Thank you.
THE COURT: Mr. Hermesmeyer, you get very close to being held in contempt of court. Would you answer my question?
MR. HERMESMEYER: I have no further response, your Honor.
THE COURT: Okay. Mr. Hermesmeyer, I’ve ordered you to answer my question, and you’ve refused to answer it. I conside that you’re in civil contempt of court, and also you’re in violation of one of the local rules that requires attorneys to appropriately conduct themselves and to respond and answer orders of the Court. I’m going to give you another opportunity to answer my question. And if you would like, if you decline to answer my question, I’ll give you an opportunity at this time to respond to my suggestion that you will be held in civil contempt of court and held in violation of the local rule concerning the conduct of attorneys, if you refuse to answer my question. You may proceed.
[Pause in proceedings.]
THE COURT: Okay. Apparently you’re not going to respond. I’m ordering that you are in violation of the local rule. Let me get the exact number of it.
HERMESMEYER: Your Honor, at this point I would move to withdraw from the representation of [the defendant] given the indications that the Court has made. [He] needs an attorney that’s not under the threat of civil contempt or whatever sort of contempt
that the Court is indicating at this point.
THE COURT: I deny that motion. Rule of Criminal Procedure LCR 57.8(b) says: A presiding judge, after giving an opportunity to show cause to the contrary, may take any appropriate disciplinary action against a member of the bar for conduct unbecoming a member of the bar and failure to comply with any order of the Court. I consider that you have violated that rule in both respects. I’ll give you an opportunity—I’ve given you an opportunity to show cause why you shouldn’t be disciplined for that and you’ve declined to respond, so I’m ordering that you pay a $500 fine, and that it be paid by 2:00 today, and be paid to the office of the clerk of court here in Fort Worth.
In affirming sanctions for vexatious litigation in connection with bankruptcy proceedings, the Fifth Circuit noted, in particular: “Appellants’ . . . repeated attempts to litigate issues that have been conclusively resolved against them or that they had no standing to assert and by their unsupported and multiple attempts to remove . . . the trustee.” Carroll v. Abide, No. 16-30996 (March 13, 2017).
Plaintiff accused defendant (and his employer) of sexual assault while incarcerated at a privately-run detention center. Defense counsel had recordings of calls made by the plaintiff, from the facility, suggesting that the encounters were consensual. Counsel did not identify the recordings in their Rule 26 initial disclosures, and did not make the recordings available until the plaintiff’s deposition, after questioning her about the conversations. The district court sanctioned defense counsel for inadequate disclosure and the Fifth Circuit affirmed, concluding that “some evidence serves both substantive and impeachment functions and thus should not be treated as ‘solely’ impeachment evidence” under Rule 26. Olivarez v. GRO Group, Inc., No. 16-50191 (Dec. 12, 2016).
On September 16, 2013, Defendants obtained a magistrate judge’s report that recommended dismissal of Plaintiffs’ complaint. On September 18, Defendants served – but did not file – a motion for sanctions, stating that it would not be filed until the 21-day Rule 11(c)(2) “safe harbor” period passed. Plaintiffs objected to the report on September 30; Defendants filed their motion on October 18; and after adoption of the report and further briefing, the district imposed $25,000 in sanctions in mid-2014. The Fifth Circuit rejected Plaintiffs’ challenge to the sanction based on the safe harbor period, reasoning — “Given that Plaintiffs could have formally or informally disavowed their claims during the 21-day period after Defendants served their motion, but instead elected to continue pursuing their claims, the district court did not abuse its discretion in rejecting Plaintiffs’ ‘safe harbor’ argument.” Margetis v. Ferguson, No. 16-40563 (Nov. 10, 2016, unpublished).
A steel-hulled tugboat, owned by Marquette, allided with the fiberglass-hulled SES Ekwata, rendering the Ekwata unusable. In the resulting litigation, the plaintiff won damages and an award of sanctions under the district court’s inherent power. On appeal, “Marquette asserts that the fee award was unwarranted because Marquette had a good faith basis to challenge the quantum of damages and thus in proceeding through a trial. But even if true, this fact did not justify Marquette’s intransigence on liability or the means by which Marquette defended [Plainitff’s] damages claim—namely, one expert who, according to the
district court’s findings, opined on value ‘without including any comparables, without considering the equipment on the vessel, without an accurate description of the vessel, and without reliable underlying information” and a second expert who, according to the district court’s findings, “not only failed to correct the glaringly incorrect information set forth in [the first expert’s] report, but incorporated it into his own.” Accordingly, the Fifth Circuit affirmed. Moench v. Marquette Transp. Co. (revised October 13, 2016).
The preliminary injunction said: “Plaintiffs may contact former and current . . . employees . . . of the Debtor if and only if a written request is made by Plaintiffs’ counsel to counsel for SkyPort, and counsel for SkyPort either a) agrees to the proposed contact or b) does not respond within 1 business day,” and: “Plaintiffs are temporarily enjoined from: pursuing any and all claims or causes of action, derivative or direct, against all of the Defendants.”
Nevertheless, the trial court found that Plaintiffs’ counsel and Plaintiffs’ financial advisor “continued to pursue evidence and witnesses―namely Cole [Skyport’s former president]. They encouraged Cole to pursue her own claims . . . in other courts by arranging for her counsel, providing for a “loan” for her counsel’s retainer, and pursuing financial support for the state court litigation.”
The Fifth Circuit affirmed a substantial award of sanctions, reflecting the attorneys fees incurred to rectify the situation. The Court rejected defenses based on whether (1) the award was civil or criminal in nature, (2) fees alone could be the basis of the sanction awarded, (3) the injunction no longer was in effect, (4) the alleged violations were inadvertent, and (5) the individuals sanctioned were not subject to the order. Goldman v. Bankton Fin. Corp., No. 15-2-243 (Oct. 12, 2016, unpublished).
Icy litigation about the “sno-ball” market in New Orleans led to a series of sanctions motions, requiring the Fifth Circuit to evaluate the potential chilling effect of sanctions. (The opinion cites this informative article about the technical development of shaved-ice treats.) The Court held:
- “If SnoWizard made material misrepresentations about the validity of various trademarks and patents [in other litigation], Southern Snow should have introduced those claims during its litigation over the validity of those trademarks and patents during the trial”;
- Alleged “obstructive acts” during those proceedings “are not criminal conduct” and thus “cannot act as a predicate offense for a civil-RICO claim”;
- Dismissal without prejudice is not a sufficient predicate for a later malicious prosecution claim; and
- Conversely, the various sanctions and damages theories advanced were “no so obviously foreclosed by precedent as to make them legally indefensible.”
The Court concluded: “”The parties could have shaved down the overwhelming costs in time, expense and scarce judicial resources that this litigation has consumed it they could have abandoned their unrelenting desire to crush the opposition.” Snow Ingredients, Inc. v. Snowizard, Inc., No. 15-30393 (Aug. 15, 2016). (The opinion echoes the similiarly frosty relations between the parties in the recent case of Yumilicious v. Barrie, involving a dispute about frozen yogurt franchises.)
The district court required the plaintiff in an FLSA case to submit her phone to a forensic examiner. It then awarded significant sanctions when the defendants’ “inspection revealed that the text messages in question were not on [Plaintiff’s] phone, that the mobile application allegedly containing such text messages was not on the phone, and that the phone appeared to have been reset or newly activated only three days before the forensic inspection.” The Fifth Circuit found no abuse of discretion; footnote 2 of the opinion details several unsuccessful explanations and counterarguments offered by the plaintiff, which had no traction here but could be of interest in a future e-discovery dispute involving similar issues. Timms v. LZM, LLC, No. 15-20700 (July 5, 2016, unpublished).
Continuing a line of cases involving careful scrutiny of injunctions by the Fifth Circuit, the Court again took issue with an order in Scott v. Schedler. The district court required Tom Schedler, Louisiana’s Secretary of State, to “maintain in force and effect his or her policies, procedures, and directives, as revised, relative to the implementation of the [National Voter Registration Act of 1993] with respect [to] coordination of the [Act] within Louisiana.” Schedler objected that the order was not sufficiently specific and the Fifth Circuit agreed: “[T]he injunction refers generally to the defendant’s policies without defining what those policies are or how they can be identified.” Noting that “[w]e are sensitive, of course, to the district court’s difficult position” in drafting a specific injunction without “dictating with intricate precision” state policy, the Court reviewed case law in the area and offered some guidance for remand. No. 15-30652 (June 15, 2016). While arising in the civil rights context, and not involving an effort to hold the Secretary in contempt, this opinion follows naturally from several other recent cases (link above) that have found insufficient specificity to justify sanctions.
After an investigation by special master Louis Freeh, the district court administering the Deepwater Horizon claims process imposed sanctions on a law firm that had exploited a relationship with a former staff attorney for the program. Among other arguments, the firm argued that the district court could not invoke its inherent power, because the program was not a court proceeding. The Fifth Circuit disagreed, noting that the district court had retained jurisdiction over administration of the program in the order that created it, so its “inherent authority to police seroius misconduct before it extended to the [program] over which it retained continuing and exclusive jurisdiction.” The Court distinguished Positive Software Solutions v. New Century Mortgage Corp., 619 F.3d 458 (5th Cir. 2010), which reversed a sanctions award about an arbitration, and FDIC v. Maxxam, Inc., 523 F.3d 566 (5th Cir. 2008), which involved “a proceeding that was not before the district court and did not challenge [its] authority.” In re Deepwater Horizon, No. 15-30265 (June 2, 2016).
Unsuccessfully, Plaintiff sued about the foreclosure on his home in state court in 2008, and again in federal court in 2012. The Fifth Circuit said he was “WARNED that further frivolous litigation will result in substantial sanctions under Rule 38 or this court’s inherent sanctioning power and will include monetary sanctions and restrictions on access to federal court.” Then, he filed a 60(b) motion, which he also lost, and which he also appealed. The Court dismissed his appeal as frivolous, sanctioned him $500, and barred him from future litigation about the foreclosure without leave of court. Fantroy v. First Financial Bank, No. 15-10975 (May 13, 2016, unpublished). (Some time ago, I wrote an article called “Loud Rules” with Wendy Couture about the nuances of this kind of judicial warning.)
The case of In re Mole involved continuing fallout from proceedings involving impeached judge Thomas Porteous. Mole was accused of hiring an attorney who “had no useful experience in the type of litigation” at hand in an attempt to have Judge Porteous recuse himself. In disciplinary proceedings before the Eastern District of Louisiana, the first judge to hear the matter declined to sanction Mole, but the full court – reviewing the same record – suspended him for a year. The Fifth Circuit found that the en banc Eastern District could rule differently from the initial judge without giving it deference, and that sufficient evidence supported the sanction — in particular, “the $100,000 severance fee in the retention letter incentivizes the prospect of a recusal.” No. 15-30647 (May 4, 2016).
Baker sued DeShong under the Lanham Act about use of the phrase “HIV Innocence Group,” in connection with advocacy programs for individuals accused of infecting others with HIV. DeShong won and sought an award of attorneys fees. The Fifth Circuit concluded that after Octane Fitness v. Icon Health & Fitness, 134 S. Ct. 1749 (2014) (a patent case, but analogous to the similar Lanham Act provision), an award of fees to a defendant was not limited to bad faith and did not require a “clear and convincing” showing. To qualify as an “exceptional” case that justifies a fee award, the court should consider a “nonexclusive’ list of ‘factors,’ including ‘frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.” Baker v. DeShong, No. 14-11157 (May 3, 2016).
Last Friday, I spoke about recent federal cases on sanctions and professional responsibility issues; for some ethics CLE self-study, here is the handout that I used.
The plaintiffs in Hall v. Phenix Investigations were also defendants in contentious state court fraudulent transfer litigation. They alleged that a private investigation firm violated the FCRA in its work in that litigation. The Fifth Circuit affirmed the dismissal of the case on the pleadings, finding that “the report was commissioned for use in ongoing commercial litigation, which is not a qualifying purpose of the FCRA even it may potentially be used for such a purpose someday. And, “[e]ven assuming that filing a lawsuit to collect on a judgment could constitute the collection of a consumer account within the meaning of the FCRA, there is no collection of a consumer account here because the judgment arose from a commercial transaction.” No. 15-10533 (March 29, 2016, unpublished).
In a wrongful foreclosure case, the borrower alleged that PNC Bank had not proved its ownership of the note. Then, “an attorney representing [defendants] showed an attorney employed by [Barrett-Bowie’s law firm] the original blue ink note signed by Barrett-Bowie. The Firm’s attorney acknowledged that the note was indorsed from the original lender to First Franklin Financial Corporation and from First Franklin Financial Corporation to PNC Bank. The Firm’s attorney retained a copy of the original note and reported what she had seen to her colleagues at the Firm.” Nevertheless, the firm filed two more pleadings repeating the standing allegations, and in response to a summary judgment motion — while not directly disputing the servicer’s proof of standing in response — asked that the court “deny [the servicer’s ]motion ‘in its entirety’ and argued that genuine issues of material fact existed ‘on elements in each of Plaintiff’s remaining causes of action.'” An award of Rule 11 sanctions against the plaintiff’s firm was affirmed in Barrett-Bowie v. Select Portfolio Servicing, Inc., No. 14-11249 (Nov. 25, 2015, unpublished).
Guzman sued Celadon Trucking for personal injuries. On May 9, 2011, Celadon’s counsel asked him to undergo an independent medical exam. On May 27, Guzman said in his deposition that he intended to undergo back surgery. Celadon later contended that his surgery constituted spoliation of evidence, and requested an adverse jury instruction. The Fifth Circuit affirmed its denial, noting: “After [Celadon’s counsel] received this disclosure in the deposition, they made no request to be informed of his surgery date, nor did they ask that he delay surgery pending his examination. Only after the examination was completed did [they] assert that the surgery had meaningfully altered evidence. While the timing of Guzman’s surgery may seem strange, there is no evidence to suggest that he acted in a manner intended to deceive [Celadon] or that he undertook the surgery with the intent of destroying or altering evidence.” Guzman v. Jones, No. 15-40007 (Oct. 22, 2015).
The district court removed a bankruptcy trustee after he sought to bill a family trip to New Orleans to the estate, noting two past situations where the court had an issue with the trustee’s practices. The Fifth Circuit affirmed, rejecting several challenges to that ruling based primarily on the consideration of the past situations, holding: “The district courts and in turn the bankruptcy courts are the keepers of the temple. These courts rely on the bar to abide by its strict rules and norms of conduct. Bankruptcy practice presents many tasks attended and girded by strict identity of duty and diligence by its officers. The courts below were only minding their role: not to end, but to redirect a distinguished presence at the bar, and to give sustenance to necessarily demanding norms of practice. That this is expected does not diminish its importance.” Smith v. Robbins, No. 14-20588 (Sept. 25, 2015).
Continuing a series of opinions that vacated findings of contempt – most recently in Waste Management v. Kattler, 776 F.3d 336 (5th Cir. 2015) – the Fifth Circuit vacated a contempt finding against an attorney for allegedly encouraging his client to make inappropriate online postings. Test Masters Educational Services v. Singh Educational Services, No. 13-20250 (Aug. 21, 2015). Applying Waste Management, the Court found inadequate notice from a show-cause order that only named the client. On the merits, agreeing that the relevant injunction against the client bound the attorney, the Court found no clear and convincing evidence that he personally had violated the injunction.
The Eastern District of Texas suspended attorney Robert Booker for three years. While a magistrate issued a report, which was reviewed and adopted unanimously by the Eastern District Judges, the Fifth Circuit held: “[W]e cannot discern from the record whether the district court specifically found that Booker acted in bad faith under the clear and convincing evidence standard.” Accordingly, the Court remanded for the district court to “specify whether it finds that Booker has committed any ethics violation based on clear and convincing evidence and whether Booker acted in bad faith in committing any such violations.” In re: Booker, No. 14-41194 (Aug. 3, 2015, unpublished). (Subsequently, the Fifth Circuit affirmed on the merits.)
The Fifth Circuit remanded to calculate an attorney fee award when: “At nearly every turn, this Department of Labor investigation and prosecution violated the department’s internal procedures and ethical litigation practices. Even after the DOL discovered that its lead investigator conducted an investigation for which he was not trained, concluded Gate Guard was violating the Fair Labor Standards Act based on just three interviews, destroyed evidence, ambushed a low-level employee for an interview without counsel, and demanded a grossly inflated multi-million dollar penalty, the government pressed on. In litigation, the government opposed routine case administration motions, refused to produce relevant information, and stone-walled the deposition of its lead investigator.” Gate Guard Services v. Perez (Secretary, Department of Labor), No. 14-40585 (July 2, 2015, unpublished).
In Zente v. Credit Management, L.P., an attorney sought to appeal the district court’s referral of a Rule 11 matter to the Western District of Texas disciplinary committee. The Fifth Circuit found that he had no standing: “In accordance with the cases from our sister circuits, we conclude that a referral of attorney conduct to a disciplinary committee, absent a specific finding of misconduct, is not a sanction that confers standing to appeal. Thus, [Attorney] has standing to appeal in the instant case only if the district court’s referral to the Admissions Committee was accompanied by a specific finding of misconduct. In the circumstances of this case, we conclude that the court made no finding of misconduct. The district court made no findings like those that courts have found conferred standing to appeal. It made no factual findings or legal conclusions regarding the alleged misconduct, and made no implied or explicit finding that [Attorney] violated any ethical rule or canon. No. 14-50910 (June 15, 2015).
An attorney challenged sanctions and contempt orders on appeal; one of her major points was inability to pay. The Fifth Circuit reminded that inability to pay is a defense to a charge of civil contempt, as to which “[t]he alleged contemnor bears the burden of producing evidence of his inability to comply. Failure to do so waives further consideration of this issue, even in the face of an order that added $100/day for noncompliance. Garrett v. Coventry, No. 14-10525 (Feb. 6, 2015).
Waste Management sued Kattler, a former employee, for misappropriating confidential information and other related claims. A dispute about what information Kattler had in is possession expanded to include a contempt finding against Kattler’s attorney, Moore. Waste Management v. Kattler, No. 13-20356 (Jan. 15, 2015). The Fifth Circuit reversed, reasoning as follows:
1. The order setting a hearing referenced a motion, by Pacer docket number, that only sought relief against Kattler and not the attorney. It was not an adequate “show-cause order naming [both] Moore and Kattler as alleged contemnors[.]”
2. On the merits, the Court found that Kattler had misled Moore as to the existence of a particular “San Disk thumb drive,” that Moore had acted prudently in consulting ethics counsel and withdrawing after he learned of the untruthfulness, and that new counsel made a prompt disclosure about the drive that avoided unfair prejudice. This part of the opinion reviews Circuit authority about the failure to correct incorrect court filings.
3. Also on the merits, “while Moore clearly failed to comply with the terms of the December 20 preliminary injunction by not producing the iPad image directly to [Waste Management] by December 22, this failure is excusable because the order required Moore to violate the attorney-client privilege.” Further, the relevant order only “required Kattler to produce an image of the device only, not the device itself,” which created a “degree of confusion” that excused the decision not to produce the actual iPad.
Law360 has also reported on this decision, and an expanded version of this article appears in the Texas Lawbook.
The issue in Omega Hospital LLC v. Louisiana Health Service & Indemnity was whether the defendant (also known as Blue Cross Blue Shield of Louisiana), had an objectively reasonable basis for removal. No. 13-31085 (Nov. 18, 2014, unpublished). Some of the Blue Cross insureds at issue were federal employees covered by a plan overseen by the U.S. Office of Personnel Management. The Fifth Circuit reversed an award of attorneys fees against Blue Cross, noting “case law arguably supporting Blue Cross, and the absence of a ruling from this court,” and thus concluding: “We cannot say that Blue Cross lacked a reasonable belief in the propriety of removal” under the “federal officer” statute, 28 U.S.C. § 1442(a)(1).
The Fifth Circuit withdrew its original opinion in Scarlott v. Nissan North America to issue a revised opinion on rehearing. No. 13-20528 (Nov.10, 2014). The Court did not materially change its earlier holding that the amount-in-controversy requirement for diversity jurisdiction was not satisfied, or its disposition by a remand to the district court for purposes of remand to state court. The Court added discussion — and a dissent — about how the district court should handle a sanctions award on remand. The plurality simply said: “In light of our holding that the district court did not have jurisdiction over this case, the district court should reconsider whether to award attorneys’ fees and costs to the defendants; and if the court decides that attorneys’ fees and costs are still appropriate, the court should reconsider the amount of the award.” The dissent would vacate the award; among other points, it made this basic one: “By its very nature, section 1927 involves assessing the merits of the claim, which establishes the inappropriateness of the district court’s order in light of the lack of jurisdiction.”
“[Attorney] Grodner filed a motion requesting that certain inmates housed in the same correctional facility as [Grodner’s client] be allowed to provide testimony by video. The state did not oppose this form of testimony. Judge Jackson denied the order, however, requiring the incarcerated inmates to appear in court. As a result, Grodner filed five new motions requesting that the district court subpoena certain inmates to testify in court. Grodner styled those motions ‘unopposed,’ although she admittedly never contacted opposing counsel to confirm this. Even after opposing counsel filed a memorandum clarifying their opposition to the subpoenas, Grodner proceeded to file three more ‘unopposed’ motions requesting subpoenas.” In re Grodner, No. 14-98001 (Nov. 3, 2014, unpublished). The Fifth Circuit affirmed the district court’s sanction of a 60-day suspension from practice before the Middle District of Louisiana.
The district court ordered Glay Collier, a bankruptcy attorney, to stop advertising for “no money down” Chapter 7 services. Despite efforts by Collier, some online ads remained. The district court found him in contempt and ordered him confined for 48 hours “[a]s a result of the violation of this Court’s order, without any reasonable excuse other than ‘I forgot[.]'” In re Glay Collier, No. 14-30887 (Sept. 19, 2014, unpublished). The Fifth Circuit granted mandamus, finding that this order involved criminal rather than civil contempt, and thus triggered procedural safeguards that had not been invoked. Among other considerations, the Court noted that “the sanction was for an unconditional term of imprisonment,” that Collier “could have taken additional steps to comply with the court’s order by the time he was remanded into custody,” and that the district court cited “‘the violation’ of [its] order (not the continued non-compliance) as the basis for its finding of civil contempt.” A similar order was treated in the same fashion in the later case of Wheeler v. Collier, No. 14-30961 (March 5, 2015, unpublished).
Appellant did not fare well in Bell v. Bell Family Trust, where the Fifth Circuit observed: “The inadequacy of her briefing on appeal does not fall far from her pleadings below, upon which the magistrate judge reflected: ‘The undersigned spent a significant amount of time parsing through the morass of Bell’s voluminous, rambling, and unintelligible pleadings, which proved to be a substantial waste of time and resources. They contain a “hodgepodge of unsupported assertions, irrelevant platitudes, and legalistic gibberish.” As succinctly stated by the late Judge Alvin B. Rubin: “[t]he ability to fill more than 36 pages with no more than legal spun sugar does not make an argument substantial.”’ Construing liberally Bell’s continued hodgepodge of assertions, we discern only one issue for review . . . . .” No. 13-31219 (July 8, 2014, unpublished)
The agreed protective order said: “At any time after the delivery of documents designated ‘confidential,’ counsel for the receiving party may challenge the confidential designation of any document or transcript (or portion thereof) by providing written notice thereof to counsel for the opposing party.” The producing party then has 15 days to seek protection; if it does not do so, “then the disputed material shall no longer be subject to protection as provided in this order.” Moore v. Ford Motor Co., No. 13-40761 (June 20, 2014).
Pursuant to the order, Ford produced four boxes of documents related to Volvo safety issues. These communications ensued:
- On May 11, 2004, plaintiffs’ counsel emailed to challenge the confidentiality designations of several documents.
- On June 4, Ford’s counsel asked for Bates numbers.
- On June 23, plaintiffs’ counsel responded, expanded on the confidentiality argument, and said it “will begin passing them out to any and everyone that is interested”
- In July, plaintiffs’ counsel asked: “what’s the word . . . on confidentiality?”
- The next day, Ford’s counsel withdrew its designations as to some documents, said it was “evaluating your claims” as to others, and “expects you to abide by the terms of the Protective Orders in the meantime”
- Plaintiffs’ counsel responded: “I gave Ford adequate time. I am sending the materials out. Thanks for trying.” (He did not specify what “materials”)
- On February 22, 2005, plaintiffs’ counsel asked for an update on the “confidentiality issue”
- On March 8, 2005, Ford responded that “in the spirit of cooperation” it would “officially de-designate from the Protective Order” specified other documents.
In 2012, documents surfaced in other litigation that Ford had produced pursuant to the above protective order; while the opinion does not specify what they were, it seems clear that they were documents which Ford had not formally “de-designated.” Ford moved to enforce the protective order and the district court agreed, finding no “clear written notice . . . challenging the confidential designation of these documents.”
On appeal, plaintiffs argued that the 15-day period ran from the first email, and Ford thus waived its designations by not moving for protection. The Fifth Circuit disagreed, finding the protective order ambiguous on this issue, and stating: “This interpretation may well be the better reading without more, but the parties understanding of these agreed orders bears upon the interpretation, and the actions of both parties strongly suggest” otherwise, noting the lengthy dialogue between the parties. Noting that “[a]lthough on de novo review a different outcome may obtain,” the Court found the district court’s conclusion that no waiver occurred to not be clearly erroneous.
A dissent, among other arguments, noted that (1) the 15-day provision only requires that confidentiality be “in dispute,” (2) Ford drafted the agreement so any ambiguity should be construed against it, and (3) Ford had the burden to establish confidentiality. The dissent concluded the majority opinion undermined “efficient resolution of discovery disputes” by allowing “Ford . . . to undermine this purpose through vague, non-responsive answers.”
Ayala was killed by a propane heater explosion; his estate sued the manufacturer for damages. Ayala v. Enerco Group, 13-30532 (May 28, 2014, unpublished). Ayala’s wife testified that he was generally careful with the heater, although she did not observe him at the time of the accident. An expert identified several possible defects with the heater, but: “[There was no evidence to suggest the Ayalas’ heater itself was defective. He did not perform a structural analysis of the Mr. Heater or destructive testing of an example unit. His conclusions supporting that there could be a leak were based solely on the nature of the item itself. McPhate also admitted that he could not rule out other potential sources of a propane leak other than a defect in the heater, such as a faulty propane bottle or a failure by Mr. Ayala to secure the valve properly on the heater.” Accordingly, the estate’s claims failed. A sanctions award against the plaintiff’s counsel under 28 U.S.C. § 1927 for filing a second lawsuit was reversed because that filing did not show a “persistent” pattern of vexatious litigation as required by that statute.
Two cases warn against skipping foundational steps (or “not showing your work”):
1. The dismissal of Garcia v. Jenkins Babb, LLP was affirmed for failure to allege facts sufficient under Iqbal to show that an FDCPA claim arose from a consumer transaction; more specifically, “giv[ing] no indication what item was purchased or what service was paid for, much less explain how the item or service was intended for personal or family use.” No. 13-10886 (May 29, 2014, unpublished). (The case returned, and dismissal was again affirmed, in Israel v. Primary Financial Services, No. 14-10012 (May 28, 2015, unpublished)).
2. An award of sanctions was reversed and remanded in Arnold v. Fannie Mae when “the
district court abused its discretion by failing to adequately articulate the authority, the basis, and the reasoning for the sanctions” under Rule 11, inherent power, or 28 U.S.C. § 1927.
In Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., the title insurance company mistakenly left key provisions out of a policy due to a software problem, while the insured’s surveyor erroneously measured the extent of a “flowage easement” held on the development property by Lake Lewisville. No. 12-40692 (Jan. 14, 2014). The Fifth Circuit held: (1) reformation was justified, because the insured had reason to know of the title company’s unilateral mistake; (2) both sides had reasonable interpretations of (a) the scope of coverage for survey error, (b) the ‘flowage easement exception,’ (c) and the ‘created, suffered, assumed, or agreed to’ exception, so coverage appeared likely. Summary judgment for the insurer was reversed and the case remanded for further proceedings. A sanctions award against the insured’s counsel under 28 U.S.C. § 1927 in connection with extracontractual claims was reversed for lack of bad faith by the attorneys.
Twenty-four plaintiffs sued Citgo for alleged violations of the overtime pay laws. The court’s second discovery order warned against destruction of personal emails by the plaintiff. Then, after two evidentiary hearings, the court dismissed the claims of seventeen plaintiffs for violating that order (but not of an eighteenth), entering specific factual findings for each plaintiff. Four more were then dismissed after another hearing and sets of findings. Moore v. Citgo Refining & Chemicals Co., Nos. 12-41175 and 12-41292 (Nov. 12, 2013, unpublished). The Fifth Circuit found no abuse of discretion, noting the clarity of the discovery order, the hearing of live testimony, and prejudice to Citgo (loss of the ability to show that the plaintiffs were sending personal emails “on the clock,” which had proven relevant in one of the cases that was not dismissed). The Court also reversed and rendered for $50,000 in costs, finding that the district court’s reduction of taxable costs to $5,000 because of Citgo’s size and resources was not grounded in the applicable rule.
A preliminary injunction forbade the Department of Health and Human Services from “acting in accordance with the Notice of Termination . . . relative to [a nursing facility’s] Medicare and Medicaid Provider Agreement”. After the injunction expired, HHS proceeded with termination. Oaks of Mid City Resident Council v. Sebelius, No. 12-30860 (July 17, 2013). The Fifth Circuit reversed a contempt finding against HHS, agreeing with the government’s position that the injunction was designed to pause the termination process but not forbid a later termination unrelated to the specified Notice. The Court’s approach echoes that of another recent case vacating a contempt order against the federal government, Hornbeck Offshore Services v. Salazar, No. 11-30936 (Nov. 27, 2012, revised April 9, 2013).
In Kenyon International Emergency Services, Inc. v. Malcolm, the Fifth Circuit found no abuse of discretion in an award of attorneys fees under a Texas statute to the defendants in a suit to enforce a noncompetition agreement. No. 12-20306 (May 14, 2013, unpublished). The Court clarified that “the key determination is [plaintiff’s] knowledge of reasonable limits, not . . . its knowledge of the reasonableness of the agreement” (emphasis in original). As it saw the record, the plaintiff’s CEO testified that the restrictions “were worldwide, overreaching in scope of activity, and basically indefinite in time.” The Court also reversed a sanction on the plaintiff’s lawyer related to the unsealed filing of a “sexually-explicit Internet chat,” reminding that “[i]ssuing a show-cause order is a mandatory prerequisite to imposing monetary sanctions sua sponte,” and finding that the lawyer did not have an improper purpose in making the filing and thus did not fall within Rule 11.
The Court released a revised opinion in Hornbeck Offshore Services LLC v. Salazar, which reversed a finding of civil contempt against the Department of Interior about the deepwater drilling moratorium after the Deepwater Horizon incident. No. 11-30936 (Nov. 27, 2012, revised April 9, 2013). The new opinion is streamlined to answer concerns of the original dissent; a revised dissent acknowledges those revisions but still expresses concern that “the majority opinion’s approach may give incentive for litigants creatively to circumvent district court orders.”
In affirming summary judgment for the defense in an employment case, the Fifth Circuit reminded: “Although we appreciate and encourage vigorous representation by counsel, we will not tolerate representation that is ‘zealous’ to the point of false or misleading statements. A footnote to that reminder noted: “‘zealous’ is derived from ‘Zealots,’ the sect that, when besieged by the Roman Legions at Masada, took the extreme action of slaying their own families and then committing suicide rather than surrendering or fighting a losing battle.” Branch v. Cemex, Inc., No. 12-20472 (March 26, 2013, unpublished).
The appellants in Texas Medical Providers v. Lakey sought $60,000 in attorneys fees after successful defense of civil rights claims about new abortion laws. No. 12-50291 (Feb. 26, 2013, unpublished). The Fifth Circuit rejected a request based on 42 U.S.C. § 1988, noting: “Lack of merit does not equate to frivolity . . . .” The Court also rejected a request based on inherent power, which relied upon statements by plaintiff’s counsel that they dismissed several challenges because the initial Fifth Circuit panel had declared all future appeals in the case would be heard by the same panel. It stated: “The short answer to this charge is that if courts treated as a willful abuse of process every self-serving statement of counsel at the expense of a judge or judges, there would be no end to sanctions motions.”
The judgment debtors in Seven Arts Pictures v. Jonesfilm were found in civil contempt for failure to answer postjudgment discovery and other issues about enforcement of a judgment. No. 11-31124 (Feb. 18, 2013, unpublished). The Fifth Circuit affirmed, finding that the district court had general personal jurisdiction over the debtors, that the debtors had waived arguments about the orders by not timely and properly objecting below, and that the district court did not abuse its discretion in awarding $21 thousand in attorneys fees. While the holdings on jurisdiction, waiver, and attorneys fees draw heavily from the specific facts of the case, the legal framework used is of broad applicability. Footnote 7 acknowledges the unusual procedural posture of the jurisdiction issue, which had not been raised until after the notice of appeal was filed.
Several aspects of insurance coverage for hurricane damage to a shopping center were addressed in GBP Partners v. Maryland Casualty, No. 11-20912 (Jan. 4, 2013, unpublished). The Fifth Circuit concluded that the insured: (1) did not establish a “complete interruption” of business activity to trigger coverage for lost income, (2) raised a fact issue as to whether rent abatements were necessary to prevent possible closure of the entire center, (3) did not distinguish repair fees necessary to avoid suspension of operations from other management fees, (4) the insured was responsible for various delays in replacing a damaged roof, and (5) did not allocate window damage between covered and non-covered causes. The Court also found that a summary judgment affiant did not create an impermissible conflict with earlier deposition testimony that described the effect of the storm on business operations. Id. at 6-7 & n.7.
“The central issue on appeal is whether a court can establish a receivership to control a vexatious litigant.” Applying an abuse of discretion standard, the Fifth Circuit answered “no” on the facts of Netsphere v. Baron, No. 10-11202 (Dec. 18, 2012). The Court reviewed and rejected several rationales for imposing a receivership on a portfolio of disputed domain names, including preservation of jurisdiction, bringing closure to long-running litigation, payment of a series of attorneys and controlling vexatious litigation. It then addressed how to handle the fees related to the vacated receivership. The opinion thoroughly reviews prior Circuit precedent about the reasons for and proper boundaries of a receivership. A Dallas Observer article adds some backstory about the dispute.
Servicios Azucareros v. John Deere arose from a suit by a Venezuelan company against a Louisiana-based affiliate of John Deere about the termination of a distributorship agreement in Venezuela. No. 11-30776 (Dec. 13, 2012). The district court dismissed, finding that the plaintiff failed to adequately brief an issue of “prudential standing” about the ability of foreign plaintiffs to sue U.S. citizens in federal court. The Fifth Circuit found the standing issue “totally without merit,” noting that alienage jurisdiction originated to allow British creditors to sue Americans after the 1783 Treaty of Paris and avoid a “notoriously frosty” reception in state court that hurt international commerce. The Court also disagreed with the conclusion that the briefing amounted to a waiver, reviewing case law about the handling of similar dispositive motions.
Applying Fifth Circuit law, the Federal Circuit found an abuse of discretion in not awarding sanctions under Rule 11 and 38 U.S.C. § 985 for what it saw as a frivolous patent lawsuit, and remanded to the Eastern District of Texas for consideration of an appropriate award. Raylon LLC v. Complus Data Innovations (Fed. Cir. Dec. 7, 2012). The court found that the plaintiff’s claim construction was objectively unreasonable and that the district court erred in how it weighed the plaintiff’s subjective motivation. Only time will tell whether the case leads to a wave of sanctions motions. The opinion is a strong reminder of the power of Rule 11 in civil litigation generally, where the Fifth Circuit has tended to focus recently on litigation conduct rather than positions taken.
In Hornbeck Offshore Services v. Salazar, the Secretary of the Interior appealed a $530,000 civil contempt award. No. 11-30936 (Nov. 27, 2012). After the Deepwater Horizon disaster, the Interior Department imposed an offshore drilling moratorium, which the district court enjoined on the ground that Interior had not properly followed the Adminstrative Procedure Act. Interior then imposed a new moratorium supported by more detailed findings. The Fifth Circuit reversed the contempt award, noting that the district court had not based its ruling on a potential ground about Interior’s authority, and stating: “In essence, the company argues that . . . the Interior Department ignored the purpose of the district court’s injunction. If the purpose were to assure the resumption of operations until further court order, it was not clearly set out in the injunction.” Id. at 12. A dissent criticized the majority for “making unreasonably restrictive fact findings of its own to reach an narrow and unworkably technical result.” Id. at 22. The Washington Post covers the case here.
In Gonzalez v. Fresnius Medical Care, the Court affirmed a JNOV on claims under the False Claims Act. Nos. 10-50413, 10-51171 (July 30, 2012). The Court agreed with the district court’s conclusion that the plaintiff had not shown a wrongful patient referral scheme, noting that the number of referred patients stayed the same over time, whether or not the alleged conspiracy was in place. Id. at 8. The Court also agreed that a line of cases about claims “tainted by fraud” was limited to the fraudulent inducement context. Id. at 9-11. Finally, the Court affirmed a sanctions award under 28 USC § 1927 based on the plaintiff’s changing testimony on whether she was asked to cover up the alleged scheme, noting differences between the deposition, the errata sheet afterwards, and then trial testimony. Id. at 13-16.
The plaintiff’s counsel in Mick Haig Productions v. Does 1-670 served subpoenas on Internet service providers (ISPs) about the alleged wrongful download of pornographic material. No. 11-10977 (July 12, 2012). The district court found that the subpoenas violated orders that it had made to manage discovery, and imposed significant monetary and other sanctions on the lawyer. Op. at 4-5. The Fifth Circuit found that all of the lawyer’s appellate challenges were waived — either because they were not raised below, or were raised only in an untimely motion to stay filed after the notice of appeal, and thus were waived. Id. at 5. The Court declined to apply a “miscarriage of justice” exception to the standard waiver rules, stating that the lawyer’s actions were “an attempt to repeat his strategy of . . . shaming or intimidating [the Does] into settling . . . .” Id. at 6.
In Smith & Fuller, P.A. v. Cooper Tire & Rubber Co., a law firm had inadvertently distributed documents, designated as confidential under a Rule 26(c) protetive order, during a conference of personal injury lawyers. No. 11-20557 (June 21, 2012). Pursuant to Fed. R. Civ. P. 37(b)(2)(C), the Court ordered the firm to reimburse Cooper for its fees and expenses incurred in rectifying the situation. The Court found that the protective order was an “order to provide or permit discovery” as defined by Rule 37(b)(2), that the award was justified with “specific and well-reasoned grounds . . . that any lesser penalty would not have been an adequate future deterrent,” and that the affidavits of counsel were suficient to establish the amount awarded. The Court noted that the firm had previously been sanctioned for another violation of a protective order involving Coooper. Op. at 3 n.2 & 10.
In Waldron v. Adams & Reese, LLP, the largest creditor of a bankruptcy debtor paid the retainer fee for debtor’s counsel. No. 11-30462 (March 29, 2012). That payment was not disclosed for some time, after which the trustee sought to disgorge counsel’s fees on the grounds of a disqualifying conflict of interest. The Court affirmed the lower court’s rulings, finding no disqualifying conflict on the “specific facts of [the] case.” Op. at 8 (quoting and distinguishing In re West Delta Oil Co., 432 F.3d 347 (5th Cir. 2005)). It reviewed counsel’s conduct during the bankruptcy case as well as prior representations of the debtors. Then, reminding of the “clear error” standard of review, the Court affirmed a sanction of partial disgorgement (20% of the fee) for the late disclosure. Op. at 15. The Court concluded with a thorough review of the standards for allowing pleading amendments and affirmed the denial of leave for the trustee to add new claims. Op. at 15-16.
In Shcolnik v. Rapid Settlements, bankruptcy creditors had obtained a $50,000 arbitration award of attorneys fees against the debtor, and appealed a summary judgment that the award was dischargeable. No. 10-20800 (Feb. 8, 2012). The Fifth Circuit reversed, finding an issue of fact as to whether the fee award arose from “willful and malicious injury by the debtor” in pursuing meritless claims, and was thus nondischargeable. Op. at 5-6 (citing 11 U.S.C. § 523(a)(6)). (The debtor’s threats included a “massive series of legal attacks . . . which will likely leave you disbarred, broke, professionally disgraced, and rotting in a prison cell.” A thoughtful dissent questioned whether the majority’s ruling would deter legitimate litigation demands, and whether the Court was inserting itself into matters resolved by the arbitrator. Op. at 9.
In Davis-Lynch, Inc. v. Moreno, a company sued two individuals (among others) alleging RICO violations. (No. 10-20859, Jan. 10, 2012) The individuals asserted the Fifth Amendment in their answers, and then withdrew those assertions after the plaintiff filed a summary judgment motion. The Court allowed one of those withdrawals, stating: “[A] party may withdraw its invocation of the Fifth Amendment privilege, even at a late stage in the process, when circumstances indicate that there is no intent to abuse the process or gain an unfair advantage.” (Op. at 11) It affirmed the denial of the other, noting that it was done at the “eleventh-hour” before the close of discovery. (Op. at 12) On the merits, the Court reversed a summary judgment for the plaintiff, finding deficiencies with the plaintiff’s allegations and proof of racketeering injury and activity. (Op. at 13-20) The Court cautioned against entry of “[a]n order that essentially amounts to a default judgment” in the summary judgment context. (Op. at 21)
In Brown v. Oil States (No. 10-31257, revised Dec. 27, 2011), the plaintiff in a wrongful discharge case testified that he left his job because of racial harassment, and while that case was pending, testified in a personal injury case that he left the same job because of a back injury. Finding that the plaintiff “plainly committed perjury” with this inconsistent testimony, the Court found no abuse of discretion in the sanction of dismissal of his employment suit. (Op. at 13).