Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

BROWN v. COLUMBIA SUSSEX CORP. (December 15, 2011) 

James Piggee runs the organization Giving Education Meaningful Substance. For two decades, he has organized an annual trip that exposes African-American high school students to predominately black universities. The destination for the Spring 2008 trip was Louisiana and Texas. The group reserved 41 rooms at the Marriott Hotel in Baton Rouge Louisiana. Within a few days, the hotel canceled the reservation. Piggee, the students, and the chaperones (268 in all) filed suit against Marriott, alleging that the cancellation was racially motivated. In the district court, Marriott served discovery requests on the plaintiffs in December of 2009. Several deadlines came and went. A motion to compel was granted and ignored. The district court sanctioned the plaintiffs for their delay. Finally, almost a year after the discovery was served, Chief Judge Simon (N.D. Ind.) dismissed the case pursuant to Rule 37(b) with respect to the 200 or so plaintiffs that had not responded to discovery. Plaintiffs appealed.

In their opinion, Seventh Circuit Judges Posner, Flaum, and Sykes affirmed. The Court first addressed its jurisdiction. After the original appeal, the Court ordered briefing on jurisdiction since it appeared that the district court had not entered a final judgment. During the time for briefing, the appellant's returned to the district court and obtained a Rule 54(b) final judgment -- but did not file a new notice of appeal. In FirsTier, the Supreme Court concluded that a notice of appeal was timely when it followed a district court's decision but preceded its entry of judgment. In that case, however, the only thing that followed the notice was the actual entry of the judgment. Here, the plaintiffs had to move for and support a Rule 54 judgment. The Court identified two alternate readings of FirsTier. Under one reading, a premature notice of appeal is allowed if it is followed only by the ministerial task of entering judgment. Under another reading, a premature notice of appeal is allowed if, with respect to the claim being appealed, the only thing remaining is the entry of the judgment. The Court concluded that the latter interpretation was the correct one and held the notice timely. On the merits, the Court seemed to have little difficulty in finding the dismissal sanction, although serious, not inappropriate. Plaintiffs’ counsel missed numerous discovery deadlines, violated court orders, did not have the resources to handle the case, had not even spoken with many of the plaintiffs, and was warned that the court had given its "final extension." No more is necessary.

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WILLIAMS v. ADAMS (September 23, 2011,)

Bruce Williams brought a § 1983 lawsuit against several police officers, claiming he was arrested without probable cause and assaulted. Williams brought the suit pro se and proceeded in forma pauperis. After he received a draft pretrial order from the defendants, Williams hired an attorney. For months, however, the attorney failed to respond to the defendants’ draft order. The defendants moved for dismissal and sanctions. After Williams' attorney responded to the order, the defendants withdrew their dismissal request but continued to press for sanctions. A magistrate judge, after two hearings, concluded that Williams and his attorney (who, by that time, had withdrawn from the case) were jointly liable for sanctions in excess of $9,000. Defendants rejected Williams' proposed payment plan and, after five months had passed, moved for dismissal. Judge Andersen (N.D. Ill.) granted the motion and dismissed the case. Williams appeals.

In their opinion, Seventh Circuit Judges Posner, Rovner, and Wood reversed and remanded. Sanctions imposed by a district court must be proportionate to the wrong. Here, Williams had little ability to pay but did have a lawsuit with enough merit that he was about to proceed to trial against the police officer defendants. He also complained to the Illinois Attorney Registration and Disciplinary Commission about his attorney's conduct. As a result, his attorney was suspended from practicing law for a short time and ordered to pay the sanctions, which he did. Under these circumstances, the dismissal of the complaint was an unreasonable sanction.

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E360 INSIGHT, INC. v. THE SPAMHAUS PROJECT (September 2, 2011)

The Spamhaus Project is a U.K. company that wants to rid the world of unwanted e-mail. To further this end, it provides lists of spam distributors to Internet service providers. The Internet service providers can, in turn, prevent spam from reaching its addressees. After the Project added Illinois company e360 to its list, however, it got sued. E360 brought suit in state court for tortious interference with contract, tortious interference with prospective economic advantage, and defamation. Although the Project removed the case and initially participated in the litigation, it later informed the district court that it would no longer defend the case. The district court entered a default judgment and awarded over $11 million in damages, based on the affidavit of e360's operator David Linhardt. The Project changed its mind and moved to set aside the judgment under Rule 60(b)(4). The district court denied the motion and the Seventh Circuit affirmed. But the appellate court also vacated the damages award, concluding that the Linhardt affidavit was an insufficient basis on which to calculate damages. On remand, Judge Kocoras (N.D. Ill.) awarded $27,000 on the tortious interference with contract claim and one dollar nominal damages on each of the other two claims. The Project appeals -- e360 cross-appeals.

In their opinion, Seventh Circuit Judges Posner, Kanne, and Hamilton vacated and remanded with instructions. Before addressing the merits, the court resolved some evidentiary and sanctions issues. It: a) affirmed the district court's sanctions for e360’s gross discovery abuses, b) affirmed the district court's denial of e360's motion to compel discovery that the Court found irrelevant or, at least, the absence of which created no prejudice, c) affirmed the district court's striking of e360's damages spreadsheet that was submitted well after the discovery cutoff, and d) affirmed the district court's exclusion of most of e360's primary damages witness on lack of credibility grounds. The Court turned to the principal issue on appeal -- the amount of damages. Since it had affirmed the district court's exclusion of much of e360’s evidence, the Court affirmed the two nominal damage awards. The $27,000 tortious interference with contract damages award rested on evidence that e360 lost three customers that accounted for $27,000 a month in revenue. The district court concluded that the company would have continued to do business with these three customers for one month in the absence of the Project's conduct. But the Court noted that gross revenue is not a proper measure of damages. Since there was no evidence in the record regarding what portion of that revenue was actually profit, the Court reduced the award on that count to nominal damages of one dollar as well. The Court remanded with instructions to enter judgment for three dollars.

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KASALO v. HARRIS & HARRIS, LTD. (August 26, 2011)

Mariana Kasalo brought suit under the Fair Debt Collection Practices Act against Harris & Harris. Her attorney included two class accounts in her complaint. Harris & Harris admitted that it violated the Act with respect to Kasalo, but denied that its normal practices violated the Act. The parties informed the district court judge that they intended to settle the individual claim. Although the court expressed skepticism with respect to the class claims, he allowed some discovery. Over the following months, status hearings were held, Kasalo's attorney abandoned two class theories but developed a third, and the attorney missed due dates and failed to inform the court of his intentions. When Kasalo's attorney showed up late for a May 2010 status hearing, Judge Guzmán (N.D. Ill.) dismissed the case for want of prosecution. When he showed up minutes later, the court instructed him to file a motion for reconsideration explaining why he had not been more diligent in prosecuting the case. The court later denied that motion. Kasalo appeals.

In their opinion, Seventh Circuit Judges Rovner, Wood, and Evans (who, as a result of his death, took no part in the decision) reversed and remanded. A dismissal for want of prosecution is an extremely harsh remedy and should only be used when, considering all the circumstances, less serious sanctions are unsatisfactory. The factors include the frequency of plaintiff's shortcomings, whether the shortcomings are attributal to the plaintiff or her lawyer, any prejudice, the impact on the court, and the merits of the suit. The Court noted that most of the factors weigh against an outright dismissal. Courts should consider less serious sanctions and normally should provide a warning to a party before dismissal. Here, the district court did neither. In fact, the Court specifically noted the presence of a much more appropriate remedy. The district court could have denied class certification and allowed the parties to settle the individual claim. The plaintiff then could have sought review of the class certification denial.

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MICROMETL CORP. v. TRANZACT TECHNOLOGIES (August 24, 2011)

Micrometl and Tranzact were parties to a services agreement that went sour. Micrometl brought suit in state court, alleging that Tranzact had over-billed it by more than $100,000. Tranzact removed the case to federal court. In discovery, Tranzact learned that Micrometl had received funds from third parties that reduced Tranzact's liability to less than $40,000. It also learned that Micrometl received those funds prior to the time it filed suit. Although Tranzact knew that this information brought diversity jurisdiction into question because of the amount in controversy requirement, it did nothing. Discovery closed five months later and the parties participated in a settlement conference five months after that. It was only after the unsuccessful settlement conference that Tranzact moved to remand the case to state court. Magistrate Judge Nolan (N.D. Ill.) concluded that the plaintiff could not meet the amount in controversy requirement and remanded the case to state court. She denied, however, Tranzact's motions for fees and costs. Transact appeals from the order denying fees.

In their opinion, Seventh Circuit Judges Flaum, Wood, and Tinder affirmed. The Court noted that the removal statute allows a district court to award fees and costs when a case is improperly removed. Usually, it is a plaintiff who seeks a fee award against a defend who improperly removed. Here, it is the defendant seeking fees. Although the Court noted the unusual situation, it concluded that there is no barrier to awarding fees to a defendant under the statute. The Court also concluded, however, that the district court did not err in refusing to award fees. The district court correctly concluded that Micrometl knew or should have known that it could not satisfy the amount in controversy requirement and should have alerted the court at the time of the removal petition. Equally troubling to the district court, however, was Tranzact's conduct. It waited 10 months after it discovered the truth to alert the district court to the situation. The Court rejected Tranzact’s nonsensical argument that it could not alert the court because of an order to participate in mediation. It also rejected the argument that the fact that a case can be remanded "any time" means that its delay in informing the court should not be considered. Tranzact's conduct wasted judicial resources and imposed costs on both parties. The district court did not abuse its discretion in refusing to award fees under § 1447(c). Tranzact also sought fees under § 1927. But § 1927 is a sanctions statute that requires a finding of bad faith. The Court deferred to the magistrate judge's finding of no bad-faith. It pointed out, for example, that Micrometl did not exaggerate its damages in order to get into federal court. It originally filed in state court and had no jurisdictional reason to overstate its damages.

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IN RE: GOLF 255, INC. (July 22, 2011)

Golf 255's creditors petitioned to have it declared bankrupt in late 2006. The bankruptcy court appointed Robert Eggmann as trustee, granted Eggmann's motion to sell the corporation's principal asset (a golf course), and ultimately approved the sale. Nick Jakich and Jay Dunlap, Golf's owners, opposed the petition and the sale, appealed from the sale order, moved to remove the trustee, and moved to dismiss the proceedings -- all to no avail. Over a year later, they continued their challenge. They asked to conduct discovery on whether the bankruptcy proceedings and sale had been fraudulent, and asked the court to rescind the sale and investigate their allegations of fraud. The bankruptcy court denied the requests. Finally, they opposed the Eggmann's request to close the case. The bankruptcy court closed the case. Judge Murphy (S.D. Ill.) affirmed. Jakich and Dunlap appeal.

In their opinion, Seventh Circuit Judges Posner and Manion and District Judge Lefkow affirmed. The Court recognized that the bankruptcy court treated the request for discovery and an investigation into fraud as a Rule 60 motion. Fraud is a basis for setting aside a judgment if the motion is filed within one year of the judgment unless there is "fraud on the court," in which case the motion can be brought at any time. The appellants insisted that a former Golf shareholder did commit fraud on the court by manipulating the proceedings and the court in forcing the sale of the golf course. The Court noted that "fraud on the court" is not defined in the rule but considered it important to define it narrowly because of its unlimited deadline. So the court asked what kind of fraud should open a judgment to collateral attack years after its entry. It answered its own question -- fraud that is unlikely to be discovered, even with diligent inquiry, for years. It cited as examples bribing a judge, tampering with a jury, or submitting forged documents. Applying that definition to the facts before it, the Court found the claim baseless. The shareholder was not acting as a lawyer during the bankruptcy proceedings, but as a creditor. If he submitted inflated claims, and encouraged others to do so as well, he would have committed fraud -- but not a fraud on the court. The Court added two remarks. First, it noted that no one who looked at the allegations of fraud, including the trustee, the bankruptcy court judge, the district court judge, and a mediator, found any merit in the allegations. Second, rescission of the bankruptcy sale would be improper unless there was a finding that the golf course buyer, a local recreation district, was complicit in the fraud and there is no evidence of that. Finally, the Court granted Eggmann’s motion for sanctions under Rule 38.

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LEE v. COOK COUNTY (March 22, 2011)

Twelve African-American Cook County employees believed that the County discriminated against them on account of their race in making promotions. They filed a charge with the EEOC. The EEOC issued right-to-sue letters in March 2008. The employees brought suit pursuant to Title VII in May of 2008, well within the 90-day window. Judge Castillo (N.D. Ill.) did not think that the twelve plaintiffs belonged in the same suit. So, in a September 18 order, he dismissed the complaint without prejudice and gave each individual plaintiff 40 days within which to file an individual action. But three of the plaintiffs waited over seven months before filing their individual actions. Judge Kendall (N.D. Ill.) and Judge St. Eve (N.D. Ill.) dismissed the individual actions as untimely. Plaintiffs appeal.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Posner affirmed -- and issued sanctions. The Court first pointed out that there was nothing improper about the original filing. Rule 20 only requires multiple plaintiffs to share a common question of law or fact, which we have here. It does not require that a common question predominate, as do the class action rules. The district court therefore erred when it dismissed the complaint. The plaintiffs should have appealed, but they did not. Instead, the plaintiffs waited several months, refiled, and appeal the dismissal of the refiled complaints. So the Court turned to the merits of the actual appeal and agreed with the district courts that refiled actions were untimely. First, the district court's order directing the plaintiffs to file individual actions within 40 days did not extend the statute of limitations or the EEOC filing window. Second, equitable tolling requires a litigant to pursue his rights diligently. Plaintiffs' lawyer did anything but. Third, the Court rejected plaintiffs' argument that the defendants either waived or waited too long to assert the limitations defense. Having resolved the merits of the case against the plaintiffs, the Court turned to their lawyer. It noted his "calamitous handling" of the case in the district court, the "sloppy performance" in the appellate court, his several procedural gaffes, his failure to file required pleadings, his grossly inadequate response to the Court’s order to show cause, and his numerous violations of the Circuit Rules. The Court reprimanded the attorney, fined him $5000, and ordered him to send a copy of the opinion to his clients.

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BUSSON-SOKOLIK v. MILWAUKEE SCHOOL OF ENGINEERING (February 10, 2011)

Dustin Busson-Sokolik attended the Milwaukee School of Engineering. In 1999, he signed a promissory note with the school in the amount of $3000. In the note, he promised to repay the money and to pay all reasonable collection costs. The School sued Busson-Sokolik in 2005 to recover the unpaid amount and obtained a default judgment of almost $6000. Busson-Sokolik filed for bankruptcy shortly thereafter. An adversary proceeding in the bankruptcy court determined that the debt was non-dischargeable. The School obtained a judgment of over $16,000 that included costs and fees. Busson-Sokolik appealed the decision to the district court, where the proceedings became rather contentious. Busson-Sokolik accused the School of false statements. The School moved to strike a portion of Busson-Sokolik's reply brief because it raised arguments not raised in the bankruptcy court or in his opening brief. Chief Judge Clevert (E.D. Wis.) denied Busson-Sokolik's motion for sanctions, granted the School's motion to strike portions of the brief and motion for costs and fees, and affirmed the bankruptcy court's judgment on the merits. He awarded over $80,000. Busson-Sokolik and his attorney appeal.

In their opinion Judges Power, Flaum, and Hamilton affirmed in all respects except that it reduced the sanction portion of the award by half. The Court noted that bankruptcy proceedings generally discharge all of a debtor's financial obligations. There are exceptions, however. One exception is for an educational loan under § 523(a)(8)(A). The Court rejected Smith's argument that the $3000 was not a loan. In order for there to be a loan, there must be a) a contract, b) the transfer of money, and c) a promise to repay the money at a later date. Those three elements are all present here. The Court also rejected Smith's argument that the loan was not educational. The Court acknowledged that some courts apply a "use" test while others apply a "purpose" test. It adopted the "purpose" test as being more consistent with the statutory language in the broader statutory goals. Here, the purpose test was satisfied because Smith was a student, he had to be a student to qualify for the loan, the money was deposited into his student account, and the loan was part of a total financial assistance package. The purpose of the loan was educational and the district court was correct in concluding that the loan was not discharged. The Court also affirmed the award of fees and costs. Although fees and costs are normally not awarded in American litigation, they are where there is a statute or a contract, unless otherwise prohibited. The promissory note contained Busson-Sokolik’s promise to pay these costs. That promise is enforceable. The Court did not consider Busson-Sokolik's arguments that fees and costs were improper under the merger doctrine. Smith did not raise that argument in either the bankruptcy court or in his initial district court brief. Thus, he has waived it twice and no exceptional circumstances exist that would compel the Court to overlook the waivers. The Court found no error in the denial of Busson-Sokolik's motion for sanctions, in that he failed to honor the safe harbor provision of Rule 9011. The Court also found ample evidence in support of the district court’s award of sanctions against Busson-Sokolik and his attorney. They ignored deadlines, filed baseless pleadings, ignored procedural requirements, and made duplicative filings. But they did not necessarily act in bad faith and the appeal was not necessarily frivolous. The merits of the merger argument was never considered because of waiver and it does have some basis in law. In light of all that and also considering Busson-Sokolik’s status as a student who has filed for bankruptcy, the Court exercised its discretion to reduce the sanctions by half.
 

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HOSKINS v. DART (January 20, 2011)

Joshua Hoskins had a number of complaints about the way he was treated in an Illinois prison. They included the use of excessive force, the denial of medication, and the inadequate processing of grievances. He brought five separate complaints under § 1983 against the Cook County  Sheriff and prison officials. He used a court-issued form for each of his complaints. The form contained a section which required him to list any prior lawsuits that he had filed. Hoskins listed none although he had filed three earlier civil rights lawsuits and, indeed, was still litigating them. The form contained several notices that severe sanctions, including dismissal, could result from a failure to fill out the forms correctly. During screening, the district court discovered the omission. Judge Manning (N.D. Ill.) concluded that the omissions were fraudulent and dismissed the complaints with prejudice. Hoskins appeals.

In their opinion, Judges Bauer, Tinder, and Hamilton affirmed. First, the Court found no clear error in the district court's finding of fraud. Although Hoskins claimed that the error was innocent in that it was based on another inmate's instructions, the court was well within its rights to reject that explanation. Second, the Court found no abuse of discretion in the district court's choice of sanction. Courts generally have significant discretion in imposing sanctions on those who violate its rules. Here, the district court considered lesser sanctions but chose dismissal because of the inadequacy of monetary sanctions in a pauper proceeding, the importance of the information requested in administering the three strike rule, and the multiple warnings on the form itself of the consequences of dishonesty. 

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FM INDUSTRIES v. CITICORP CREDIT SERVICES (July 22, 2010)

FM Industries brought a copyright infringement suit against Citicorp Credit Services. Judge Conlon (N.D. Ill.) found material disputes with respect to FM’s prospective relief and Citicorp’s ongoing infringement and set the case for trial. FM's lawyer, Wayne Rhine, was late in his obligation to prepare a draft pretrial order. When he did so, it was "egregiously noncompliant." Despite extensions of time and cooperation from the defendants, Rhine never fixed the problem. Eventually, the court dismissed the case for want of prosecution. The district court awarded approximately $750,000 in attorneys’ fees to the defendants under the copyright statute. The court also found that Rhine and his co-counsel William McGrath had vexatiously multiplied the proceedings under § 1927 and imposed a joint and several sanction of $35,000. FM, Rhine, and McGrath appeal.

In their opinion, Chief Judge Easterbrook and Judges Wood and Tinder affirmed in part and reversed in part. The Court first noted that any argument on the merits was irrelevant. The only reason the case did not go to trial was the dismissal sanction. On that issue, the Court had no difficulty in finding it proper. The non-compliant pretrial order with was, in the Court's words, the "straw that broke the camel's back." The Court recited the delays, the warnings, the absurd damage demands, the missed time limits, the overreaching discovery demands -- the list went on. The dismissal sanctioned was permissible under Rule 16 and was proportionate to the conduct. With respect to the statutory award of fees, the Court stated that a prevailing defendant is presumed entitled to fees under the statute and FM presented no reason to reverse that presumption. Finally, with respect to § 1927 sanctions, the Court concluded that Rhine's litigation behavior was vexatious and deserving of sanctions. McGrath, however, presented a different story. Although he did file an appearance and signed five pleadings, he was not accused of any direct misdeeds. He cannot be sanctioned under § 1927 for the misdeeds of his co-counsel or even for his failure to prevent them. The Court reversed the award of sanctions against McGrath.

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IN RE: SOUTH BEACH SECURITIES (May 19, 2010)

South Beach Securities, Inc. is controlled by Leon Greenblatt and was once a registered securities dealer. In the early 2000s, Greenblatt orchestrated a number of financial transactions among South Beach and other companies, including Scattered Corporation, which he controlled in whole or in part. At the time, South Beach's only potential assets were net operating losses. As a result of the transactions, Scattered became South Beach's only creditor. South Beach filed a Chapter 11 petition and submitted a plan of reorganization. The U.S. Trustee opposed confirmation of the plan. The bankruptcy court refused confirmation and dismissed the petition. Judge Lefkow (N.D. Ill.) affirmed. Scattered and South Beach appeal.

In their opinion, Judges Posner, Flaum, and Wood affirmed and issued a show-cause order. The Court first addressed the argument that the U.S. Trustee was not even authorized to oppose confirmation of the plan on the ground that its primary purpose was to avoid taxes. Although the Court thought the Internal Revenue Code's guidance is a ”mishmash," it concluded that the Trustee was a "party in interest" under § 1129(d) and authorized to oppose the plan. The Court specifically relied on § 307's grant of authority to the Trustee to "be heard on any issue." On the merits, the Court not only concluded that the proposed plan would not confer the desired tax consequences, it found at least three reasons why the plan could not be confirmed. First, a plan cannot be confirmed if its principal purpose is to avoid taxes. Second, a plan must be rejected if it is not proposed in good faith. Here, the lack of good faith is illustrated by the absence of any outside creditors or any real debt. Finally, a plan cannot be confirmed without the approval of the non-inside owners of at least one class of impaired claims. Because of Scattered's insider status, no such owners exist in this case. The Court concluded that the appeal was frivolous, invited the Trustee to apply for sanctions, and issued an order for the appellants and their lawyers to show cause why they should not be sanctioned.

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CARR v. TILLERY (January 12, 2010)

Rex Carr was a lawyer in southern Illinois. He and his partners had several agreements concerning the allocation of fees earned by the firm. The agreements continued in effect after the dissolution of the firm in 2003. Significant disputes arose, and a host of lawsuits were filed, with respect to those fees. A Memorandum of Understanding (MOU) was agreed to in 2004. It was meant to control the distribution of all fees, past and future, among the partners. Notwithstanding an agreement to dismiss all pending cases, Carr actually amended a counterclaim in one of the pending actions to assert that he had been fraudulently induced to enter into the MOU. The claim was eventually dismissed and the dismissal was affirmed. While the appeal was pending, Carr brought four separate suits in state court, then brought this federal case, and then voluntarily dismissed the state cases. He brought the federal case under RICO, repeating many of the allegations of the earlier suits, including the fraudulent inducement claim. The district court dismissed the suit for failure to state a claim. Carr appeals. The defendants cross-appeal from the court's denial of their motion for sanctions.

In their opinion, Judges Posner, Ripple, and Wood affirmed in part and vacated and remanded in part. On the merits, the Court disagreed with the court below that all the claims were barred by the doctrine of res judicata. The complaint contains at least one claim that postdates the earlier dismissal. The Court held that the claims were barred, however, by Illinois' "one refiling" rule. Under that rule, a plaintiff who voluntarily dismisses a complaint may start a new action within one year or the remaining period of limitations. Illinois courts have held the rule to mean that a plaintiff may commence only one new action after a voluntary dismissal. Here, Carr filed four lawsuits in Illinois before he filed the federal lawsuit. He dismissed all of the state court suits soon after he filed a federal suit. Although each of the state court suits was based on a different theory of liability or sought different relief, they all arose from the same events. That is true even for the claim postdating the earlier dismissal, a claim that the defendants violated the MOU. The Court next considered whether the RICO claim, on which federal jurisdiction was based, was so weak so as to not support jurisdiction. Such a conclusion would lead the Court to dismiss for lack of jurisdiction rather than on the merits. Although the Court termed the claimant a "complete nonstarter," since it was so on the basis of an affirmative defense, the Court concluded that a dismissal on the merits with prejudice was more appropriate. On the cross-appeal, the Court found the denial of sanctions erroneous. Although the defendants based their motion on § 1927, which does not apply to misconduct prior to the filing of the federal complaint, the Court saw no reason why the district court could not invoke its inherent, common law power to punish attorney misconduct. The filing of multiple lawsuits, including the present frivolous one, was ground enough for the Court to direct the district court to assess a proper sanction and consider enjoining Carr from conducting further related litigation.

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SALMERON v. ENTERPRISE RECOVERY SYSTEMS (August 27, 2009)

Rhonda Salmeron was fired by Enterprise Recovery Systems ("ERS"). Thereafter, she brought a qui tam action, alleging that ERS engaged in fraud related to its student loan debt collection practices. Jorge Sanchez represented Salmeron. During the three years the suit was pending in district court, Sanchez missed numerous deadlines, failed to appear in court and repeatedly failed to live up to his promises. Sanchez' conduct ultimately led the trial court to dismiss the case. On Sanchez' motion, the court reopened the case -- but warned Sanchez that it was "the final warning." Within weeks, confidential documents produced by the defendants in the case appeared on the Internet. Although no confidentiality order was in place at the time, the defendants emphasized to Sanchez that they intended the documents to be confidential and the parties agreed to keep them so. The principal reason the confidentiality agreement was not in place was because Sanchez never provided any comments or changes. Sanchez admitted leaking the document to numerous outside sources. The court dismissed the case with prejudice, finding that Sanchez violated the agreement with defendants' counsel to keep the documents confidential. Salmeron appeals.

In their opinion, Judges Ripple, Manion and Tinder affirmed. The Court first expressed its agreement with the district court that Sanchez had agreed to keep the documents confidential, pending the entry of a protective order. The Court next concluded that Sanchez' disclosure of the document to a member of the press was sufficient to support the court's finding of willfulness. The Court went on to reject the additional arguments: Sanchez had fair warning of the possibility of dismissal, defendants' failure to obtain the protective order earlier does not excuse Sanchez’ conduct, a showing of prejudice to the defendants is not required, and the government's interest in the case does not warrant a different result. In short, the Court found no clear error or abuse of discretion.

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SHALES v. GENERAL CHAUFFEURS, SALES DRIVERS AND HELPERS LOCAL UNION NO. 330 (February 27, 2009)

The losers is in a contested union election sued the winners. The defendants prevailed on all counts. As discovery proceeded during the case, it became apparent that plaintiffs could not support some of their claims. Defendants demanded that some claims be withdrawn, to no avail. Defendants asked for sanctions under 28 U.S.C. §1927 and FRCP 11. The court ordered plaintiffs’ attorney, James Banks, to pay $80,000 in sanctions. Banks appeals.

In their opinion, Chief Judge Easterbrook and Judges Rovner and Williams affirmed. The Court first addressed the defendant’s argument that the appeal was not timely. Defendants argued that Bank's motion to reconsider should not have suspended the time for appeal because it lacked merit. The Court declined to adopt such a rule. The actual rule is that the existence of the motion, and not it's merit, is what suspends the time for appeal. The Court then addressed Bank's principal argument -- that the district court should have taken into account his ability to pay in determining a sanction. The Court agreed that Rule 11 requires a court to take into account a sanctioned party’s resources. However, the Court noted that the lower court also imposed sanctions under § 1927, with a finding of bad faith. The Court concluded that tort damage principles apply to a determination of sanctions under § 1927. As such, the measure of damages depends on the victim's loss, not a lawyer's ability to pay.

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BINGHAM v. NEW BERLIN SCHOOL DISTRICT (December 4, 2008)

Sam Bingham was a Wisconsin high school student. His parents petitioned their school district to provide special education services for him. The district did not do so. Sam transferred to a private school. After Sam graduated, his parents filed a request for a hearing with the Wisconsin Department of Public Instruction. They alleged that the school district had failed to comply with the Individuals with Disabilities Education Act (“IDEA”). They asked for reimbursement of their private school tuition costs. Before a hearing was held, the district reimbursed the Binghams for the full amount they requested. The administrative law judge dismissed the petition as moot. The Binghams asked for a declaration that they had “prevailed” for purposes of seeking attorneys’ fees under IDEA. The administrative law judge refused. The Binghams appealed to the district court. The court concluded that the Binghams were not prevailing parties and denied their motion for attorneys’ fees. The Binghams appeal.

In their opinion, Judges Flaum, Rovner and Williams affirmed. In fact, the Court very quickly and easily resolved the sole issue presented by the appeal – whether the Binghams were entitled to attorneys’ fees under IDEA – against the Binghams. In Buckhannon, the Supreme Court in 2001 held that a voluntary monetary settlement by a defendant does not entitle a plaintiff to “prevailing party” status. The Court further noted that every circuit that has considered the issue has applied Buckhannon to IDEA cases.

The Court went on because it was troubled by the plaintiffs’ conduct. The plaintiffs and their counsel were well aware of Buckhannon and yet did not even cite it in their papers. The Court emphasized that it was not the fact that they appealed which was disturbing. Buckhannon has been the target of much criticism, especially when applied to IDEA. The Court allowed for the possibility that the Binghams could have elected to appeal solely for the purpose of preserving an argument for the Supreme Court. Having decided instead to ignore binding precedent, the Court ordered the Binghams and their counsel to show cause why they should not be ordered to pay the defendant’s costs and fees of the appeal. 

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