Opinion
CIVIL ACTION NO. 05-12117-RWZ.
September 26, 2007
MEMORANDUM OF DECISION AND ORDER
I. Introduction
Plaintiff's counsel filed an initial class action complaint in October 2005, with nominal plaintiff Thomas Jensen as the proposed class representative. Eleven months and three successive proposed class representatives later, plaintiff's counsel voluntarily dismissed the suit. Defendants have moved for attorneys' fees, costs and expenses pursuant to 28 U.S.C. § 1927. For the reasons discussed below, the motion is allowed.
II. Procedural History
Plaintiff's counsel, Stewart, Estes Donnell, PLC ("Stewart") filed a class action products liability complaint against defendants Phillips Screw Company and Phillips Fastener Products, Inc. (collectively, "Phillips") on October 24, 2005. (Docket # 1.) The complaint alleged defects in the design and/or production of screws manufactured and sold by Phillips for use with pressure-treated wood. (Id.) Defendants answered the complaint, raising an affirmative defense of accord and satisfaction with regard to Mr. Jensen's individual claims, based upon previous payments made to Mr. Jensen in response to his claims. (Docket # 6.)
The court held a scheduling conference on December 14, 2005. At the conference, Phillips raised their accord and satisfaction defense with the court and suggested that Jensen may not be a sufficient class representative due to his susceptibility to unique defenses. The court agreed, and directed Stewart to find a new class representative. (See Defs.' Mem. in Supp. of Mot. for Attorneys' Fees, Costs and Expenses (Docket # 43) at 3; Pl.'s Resp. to Defs.' Mem. in Supp. of Mot. for Attorneys' Fees, Costs and Expenses (Docket # 47) at 2.)
The court set a schedule that allowed Stewart to amend its pleadings to add replacement plaintiffs by January 30, 2006. (Clerk's Notes for Scheduling Conference, Dec. 14, 2005.) On January 31, 2006, Stewart asked for a four-day extension of time to investigate the claims of a potential new plaintiff and file a first amended complaint. (See Docket ## 14 at 1, 47 at 3.) Stewart filed a proposed first amended complaint, adding Larry VanLandingham as a representative plaintiff, on February 3, 2006. (Docket # 16.)
On March 22, 2006, Stewart moved to replace Mr. VanLandingham with a third proposed representative, Emmett Cox. (Docket # 19.) Defendants opposed the motion. (Docket # 20.) In support of their opposition, defendants asserted that Gayle VanLandingham, Mr. VanLandingham's wife, made an unsolicited call to Phillips on March 14, 2006, in an attempt to resolve their claims. According to defendants, Mrs. VanLandingham stated that her husband had not engaged an attorney to file suit on their behalf or otherwise authorized a suit, and both Mr. and Mrs. VanLandingham subsequently stated that they did not want to participate in the suit. (Affidavit of Gary Sable (Docket # 20-3).) Stewart did not address these allegations in their response, stating only that Mr. VanLandingham "communicated to Plaintiff's counsel his desire to no longer participate in this action." (Affidavit of David Gore (Docket # 22-2) ¶ 4.) Stewart subsequently asserted that it had telephoned Mr. VanLandingham in January of this year, at which time Mr. VanLandingham stated that he had given Stewart permission to prepare and file the amended complaint naming him as a representative plaintiff. (Docket # 47 at 12.) The court on April 6, 2006, granted Stewart's motion to substitute Mr. Cox for Mr. VanLandingham. (Docket # 23.) Stewart thereafter filed an amended complaint, with Mr. Cox as the representative plaintiff. (Docket # 24.)
Mr. Gore, the Stewart attorney who principally communicated with Mr. VanLandingham regarding the filing of an amended complaint naming him as a representative plaintiff, died in May 2006. (Docket # 31 ¶ 1; Docket # 47 at 11.)
In an affidavit filed on April 7, 2006, Stewart attorney David Gore attested that "[a]n inspection of Mr. Cox's deck, on or about January 27, 2006, indicated substantial premature corrosion of fasteners manufactured by Defendants." (Docket # 22-2 ¶ 5.) However, Stewart filed a motion to dismiss Mr. Cox as a representative plaintiff on August 29, 2006 (Docket # 38), when it came to light that Mr. Cox had not, in fact, used defendants' screws in the construction of his deck. (Docket # 47 at 12-13.)
On the same day, Stewart filed a motion for leave to file yet another amended complaint, naming Timothy Scott Damm as the representative plaintiff. The court granted this motion with the proviso that Stewart was required to file "a statement describing the qualifications and bona fides" of the proposed representative by September 13, 2006. (Endorsed Order, Aug. 30, 2006.) On the due date, in lieu of filing the statement of Mr. Damm's qualifications, Stewart withdrew its motion to file an amended complaint. (Docket # 41.) Defendants' motion for attorneys' fees and expenses followed.
During this period the parties also briefed and argued defendants' motion for summary judgment on Mr. Jensen's individual claim. The court granted summary judgment to defendants on all of Mr. Jensen's claims on August 31, 2006. (Docket # 40.)
III. Legal Standard
IV. DiscussionPage 5
28 U.S.C. § 1927Id. Cruz v. Savage 896 F.2d 626632Id. Id. A. First Proposed Class Representative: Thomas Jensen
Defendants have requested reimbursement for all attorneys' fees, costs and expenses incurred in defending this action. (Docket # 43 at 11.) Stewart disputes defendants' entitlement to any fees and argue that, in any event, § 1927 applies only toexcess fees and costs incurred as a result of the purported misconduct. According to Stewart, § 1927 therefore does not allow for the recovery of any fees or costs associated with filing the initial complaint naming Mr. Jensen as proposed class representative. (Docket # 47 at 6-9.)
Although the First Circuit has not decided the issue, the argument that § 1927 only applies to the multiplication of proceedings and not to the initiation of proceedings has been accepted by other circuits. See, e.g., Steinert v. Winn Group, Inc., 440 F.3d 1214, 1224 (10th Cir. 2006); DeBauche v. Trani, 191 F.3d 499, 511 (4th Cir. 1999); MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicone Corp., 420 F.3d 1369, 1382 (Fed. Cir. 2005); In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 435 (9th Cir. 1996). I agree that the unambiguous language of § 1927 aims only at attorneys who multiply proceedings once a lawsuit has begun. See, e.g., DeBauche, 191 F.3d at 511; see also BedRoc Ltd., LLC v. United States, 541 U.S. 176, 187 n. 8 (2004) (recognizing "longstanding precedents that permit resort to legislative history only when necessary to interpret ambiguous statutory text"). Accordingly, Stewart may not be sanctioned under § 1927 for filing its initial complaint.
Stewart could be sanctioned for multiplying the proceedings by its continued prosecution of Mr. Jensen's claims, if those claims had no chance of success in light of Mr. Jensen's prior payments from Phillips. See Cruz, 896 F.2d at 632 (affirming sanctions under § 1927 against an attorney that multiplied proceedings by continuing to prosecute a meritless claim). Although the court ultimately found that Phillips and Mr. Jensen had entered into an agreement to resolve Mr. Jensen's claims in exchange for payment from Phillips (Docket # 40), defendants do not assert that Stewart unnecessarily multiplied the proceedings by its continued prosecution of Mr. Jensen's claims. Accordingly, Stewart is not subject to any sanctions under § 1927 relating to its representation of Mr. Jensen.
B. Second Proposed Class Representative: Larry VanLandingham
The parties dispute the circumstances surrounding Mr. VanLandingham's designation and subsequent withdrawal as a proposed class representative. Defendants' allegations, if accurate, reveal serious violations of professional conduct by Stewart. However, Mr. VanLandingham has not filed an affidavit, and I cannot accept either party's hearsay version of Mr. VanLandingham's statements to them.
Nonetheless, both parties' versions of events indicate that, at the least, Mr. VanLandingham preferred to negotiate a resolution to his claim with Phillips directly instead of litigating. I am troubled by the possibility that Stewart was either unaware of this fact or persisted in naming him as a proposed class representative regardless, as it suggests that Stewart may not have undertaken a reasonable inquiry into whether Mr. VanLandingham understood and desired the responsibilities inherent in becoming a class representative. As one court has eloquently stated:
In a class action in federal court, the named class representative plaintiffs have significant responsibilities to the class they represent. The integrity of the class action device itself further requires that the named class representatives be something more than the unwitting pawns of their counsel. The same policies which obligate the representatives to be the real parties in interest obligate their lawyers to keep the named plaintiffs sufficiently informed and advised to discharge that important obligation faithfully and adequately.Deadwyler v. Volkswagen of America, Inc., 134 F.R.D. 128, 139 (W.D.N.C. 1991). In either case, unnecessary continuation of the class action resulted when Mr. VanLandingham was named and then withdrawn as a proposed class representative, as more time had to be allowed to find yet another proposed representative.
C. Third Proposed Class Representative: Emmett Cox
Plaintiff's counsel submitted a sworn affidavit testifying that Mr. Cox's deck had been inspected in January 2006 and that this inspection indicated corrosion in fasteners manufactured by Phillips. (Docket # 22-2 ¶ 5.) However, Stewart apparently now concedes that no such inspection of Mr. Cox's deck occurred prior to filing the amended complaint naming Mr. Cox as class representative in April 2006. (Docket # 47 at 13.) Instead, Mr. Cox simply told plaintiff's counsel that he used defendants' screws in the construction of his deck, and Stewart apparently accepted this verbal representation without undertaking an inspection of the deck for verification. (Id.)
Stewart's sworn misrepresentation regarding an inspection of Mr. Cox's deck in January 2006 signifies, at the least, "a serious and studied disregard for the orderly process of justice," permitting sanctions under § 1927. See Cruz, 896 F.2d at 632 (internal quotation marks and citation omitted).
Furthermore, the court declines to accept Stewart's cavalier characterization of this conduct as a "mere mistake." (Docket # 47 at 13.) Attorneys have an obligation to make a reasonable inquiry into both the law and the facts surrounding their clients' disputes prior to initiating a lawsuit. This obligation is imposed not only by Rule 11 and § 1927, but also by the ethical obligations of the legal profession. I am mindful that sanctions should not be imposed based on hindsight; however, Stewart reasonably should have been in a position to know that Mr. Cox's claims were unsupportedprior to filing an amended complaint on his behalf. See Cruz, 896 F.2d at 633. Stewart's failure to comply with its obligation to reasonably inquire into the foundation for Mr. Cox's claim prior to proffering him as the third proposed representative plaintiff is sanctionable conduct, as it led to the unnecessary delay and multiplication of these proceedings. See Alvarado-Morales v. Digital Equip. Corp., 843 F.2d 613, 618 (1st Cir. 1988) (failure to properly investigate facts had the effect of belaboring proceedings); In re TCI, Ltd., 769 F.2d 441, 445 (7th Cir. 1985) ("If a lawyer pursues a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound, the conduct is objectively unreasonable and vexatious.").
D. Fourth Proposed Class Representative: Timothy Damm
After filing a motion to dismiss Mr. Cox's action, Stewart moved to amend their complaint to add yet another proposed representative, Mr. Damm. (Docket ## 38, 39.) Given counsel's repeated difficulties with finding a sufficient representative, the court required Stewart to file a statement describing the qualifications and bona fides of Mr. Damm within two weeks. (Endorsed Order, Aug. 30, 2006.) At the end of the two weeks, Stewart withdrew the motion without explanation instead of filing the required statement. Filing and then withdrawing motions to submit an amended complaint unreasonably extended the litigation even further. See Lee v. First Lenders Ins. Servs., Inc., 236 F.3d 443, 445 (8th Cir. 2001) (filing class action complaint and permitting case to proceed for over one year before abandoning class claim without explanation warranted sanction).
V. Conclusion
In sum, Stewart's conduct in litigating this action was "more severe than mere negligence, inadvertence, or incompetence,"Cruz, 896 F.2d at 532, and defendants were forced to endure the delay and expense of a succession of inappropriate class representatives as a result. "Section 1927 permits a court to insist that the attorney bear the costs of his own lack of care."In re TCI Ltd., 769 F.2d at 445.
Stewart argues that its actions did not result in any excess costs to defendants because discovery was not undertaken with regard to the second, third or fourth proposed plaintiffs. (See Docket # 47 at 9.) However, defendants certainly undertook expenses by, at the least, opposing the motion to substitute Mr. Cox for Mr. VanLandingham (Docket # 20) and answering the amended complaint which named Mr. Cox as the representative plaintiff. (Docket # 29.) In any event, the amount of defendants' expenses bears no relation to the fact that reimbursement of such expenses is justified.
For the reasons stated above, defendants' motion to recover attorneys' fees, costs and expenses under § 1927 (Docket # 42) is ALLOWED as to excess fees, costs and expenses incurred as a result of Stewart's filing or proposed filing of amended complaints naming Messrs. VanLandingham, Cox and Damm as representative plaintiffs. Defendants shall file a reasonable and itemized request for reimbursement within thirty (30) days.