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Ninth Circuit Upholds $30,000 Sanction Against Lawyers
Penalty Is Based on 19-Day Delay in Providing Copy of 2001 Settlement Agreement Between Same Parties In Like Action Over ADA Noncompliance and, After Supplying Copy, Doubling Settlement Demand
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals has affirmed a sanction of nearly $30,000 imposed on two lawyers for the plaintiff in a lack-of-access disability discrimination lawsuit because their law firm delayed 19 days in providing a copy of an agreement entered into 13 years earlier settling a like suit brought by the same complainant against the same property owner and, after providing the agreement, doubling the settlement demand.
One of the lawyers, Mark D. Potter, is a named partner in the law firm, Potter Handy, LLP—which has gained an unfavorable reputation, through court opinions and news articles—and the other is Phyllis Grace, now employed elsewhere. The firm has a stable of clients who are serial plaintiffs in actions under the Americans With Disabilities Act (“ADA”) and California’s Unruh Civil Rights Act, suing or threatening to sue businesses, typically small ones, over alleged barriers to access by the handicapped, generally exacting settlements.
Signing Tuesday’s memorandum opinion affirming a sanction order by District Court Judge John A. Houston of the Southern District of California were Circuit Judges Kenneth Kiyul Lee and Milan D. Smith Jr. Circuit Judge Daniel P. Collins dissented as to the upholding of that sanction, imposed under 28 U.S.C. §1927.
The three judges were in accord hat Houston erred in imposing a separate $15,000 sanction pursuant to a rule of court.
Sanctions were ordered after Houston dismissed the action, filed by Enrique Lozano in 2014 against property owner Julio Yee Cabrera and others, because the court in 2001 had retained jurisdiction after a suit brought that year by Lozano against Cabrera and others was settled. The judge reasoned that Lozano should simply have moved for the enforcement of the 2001 settlement agreement rather than bringing a new lawsuit.
Wording of §1927
Sec. 1927 provides:
“Any attorney…who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”
Houston ruled on March 2, 2022, in imposing a sanction under that section:
“Plaintiff’s counsels’ conduct of ignoring Defendants’ counsel’s repeated requests for a copy of the settlement agreement and then doubling the settlement demand when they finally provided a copy of the agreement to Defendant’s counsel, rather than dismissing the action, unreasonably multiplied proceedings in this matter. Counsel’s conduct supports sanctions under section 1927.
“Defendants seek $29,855 which represent the fees incurred from the time they first requested the settlement agreement from Plaintiffs counsel through the filing of the motion for sanctions. The Court finds that amount represents fees reasonably incurred as a result of counsel’s sanctionable conduct.”
Ninth Circuit Decision
In Tuesday’s majority opinion, Smith and Lee declared that Houston’s finding “is sufficient for purposes of imposing sanctions under the statute, as the conduct multiplied proceedings in an unreasonable manner.” They elaborated:
“It was inexcusable for Plaintiff to have filed this duplicative suit without first retrieving and reviewing the prior settlement agreement, and the district court reasonably concluded that the unjustified delay in producing the agreement adversely affected the course of the settlement discussions and unreasonably lengthened the proceedings.”
The majority did not rely solely on what Houston said in explaining the sanction imposed last year, but also recalled what he set forth in imposing a sanction earlier.
Previous Order
Sanctions were sought in 2014 (following the dismissal) under Federal Rules of Civil Procedure, rule 11, which relates to frivolous pleadings and motions, as well as under §1927. Houston imposed a sanction then under Rule 11, alone; the Ninth Circuit reversed and remanded on Feb. 7, 2017 because the judge “considered extra-pleadings conduct in awarding sanctions pursuant to Rule 11”; and on remand, he ordered sanctions under both §1927 and Rule 11.
Smith and Lee said, in affirming the sanction under §1927:
“[T]he district court’s reference to counsel’s conduct in ‘doubling the settlement demand’ must be understood in the context of its additional factual findings in support of sanctions in its prior order. The court, for example, found that Plaintiff increased the settlement amount ‘to punish Defendants’; and that ‘Plaintiff’s emails appear[ed] to be indicative of vexatious behavior as opposed to zealous advocacy.’ These findings further support the district court’s Section 1927 sanctions award.”
The sanction imposed under Rule 11 was reversed because Lozano had “raised colorable arguments in support of filing the second lawsuit.” The opening brief on appeal argues:
“The plaintiff had a good faith, legally supported argument that the 2001 Settlement Agreement between the parties, which plainly did not waive future claims (and which no one claims was breached anyway) did not preclude the filing of the 2014 lawsuit, alleging new conduct and new harm.”
Collins’s Opinion
Collins agreed with his colleagues as to reversal of the 2022 sanction under Rule 11, but argued that the sanction under §1927 should also be invalidated because the new lawsuit cannot be viewed as frivolous.
He noted that Houston faulted the plaintiff for not “dismissing the action” but, for the same reason the Rule 11 sanction cannot stand, any faultiness in bringing a new suit cannot support a §1927 sanction.
The jurist wrote:
“As an initial matter, the delay in producing the settlement agreement from the earlier case was fairly modest. Defendants’ counsel first requested the settlement agreement on April 11, 2014 and Plaintiffs’ counsel finally provided a copy on April 30—a delay of only 19 days. No court activity took place during those 19 days; there were no impending court deadlines; and Defendants’ counsel did not file a motion to dismiss until August of that year. Accordingly, there is no sense in which it can be said that the delay in providing the settlement agreement caused any filings or court proceedings to take place that would not have otherwise occurred.”
Remaining Theory
He went on to say:
“That leaves only the theory that, by delaying production of the prior settlement agreement and doubling the settlement demand for this case, Plaintiffs’ counsel unreasonably and vexatiously multiplied the proceedings by causing the case not to settle. The majority upholds the sanctions award on this basis…, but in my view, there simply is no factual basis in this record for concluding that Plaintiffs’ counsel’s challenged conduct derailed a settlement that was otherwise in the offing.
“The prior settlement agreement was delivered to Defendants’ counsel on April 30. 2014, and less than one hour later the settlement demand for this case was doubled. But by that point, the parties’ respective settlement positions had already consistently remained far apart. Until the demand was doubled, Plaintiffs’ counsel had repeatedly demanded $6,000 and had shown no willingness to accept a lower number. Although Defendants’ counsel had moved from offering only non- monetary relief to offering $2,000, there is no evidence that Plaintiffs’ counsel would ever have accepted that number. Nor is there any evidence—other than sheer speculation—that the parties might otherwise have agreed to a number between those two.”
Seen As ‘Villain’
Lozano’s opening brief, signed by named partner Russell Handy, suggests that the sanction might have been predicated on the negative perception of Potter Handy, LLP, which operates under its fictitious business name of Center for Disability Access, rather than the conduct of the attorneys. The brief says:
“ADA litigation is the red-headed stepchild of civil rights litigation. This is primarily due to the backlash of public (and judicial) sentiment against tester work, i.e., committed plaintiffs combing through cities—often block by block—to find law breaking businesses with the intention of hauling them before the tribunals of the land to pay penalties and be ordered to comply with the law. Heroes to some, villains to others.”
It continues:
“But this disdain for ADA testers often colors perception and judgment, resulting in untenable legal rulings at the district court level, where court dockets are congested with ADA filings and judges have little patience with the cases. Plaintiff’s counsel has obtained scores of appellate victories, reversing such district court decisions, not due to any amazing legal acumen but simply because there are numerous legally infirm rulings that are clearly the result of overloaded and intolerant benches.”
A footnote in the answering brief comments:
“PotterHandy attorneys Russell Handy, Esq., Dennis Price, Esq., and Mark Potter have filed approximately 50 appeals in the 9th Cir. Court of Appeals in the last 3 years….Given this volume and the lack of merit in in the instant appeal, the pattern suggests that PotterHandy LLP is more concerned with sending a message to defendants contemplating defending on the merits than they are about flawed District Court decisions.”
Handy’s Remark
Handy’s depiction of his clients “combing through cities,” looking for ADA violations, is apt to be used against his firm in future litigation, running contrary to an assertion that the plaintiff came upon the barrier to access when going to the business with an aim to make purchases or use its services, and would go back there if the barrier were removed.
A Jan. 23 Ninth Circuit opinion in Langer v. Kiser recites the requirement that in an ADA case, “a plaintiff must establish a sufficient future injury by alleging that they are either currently deterred from visiting the place of public accommodation because of a barrier, or that they were previously deterred and that they intend to return to the place of public accommodation, where they are likely to reencounter the barrier.” It adds, however:
“[W]e know that so-called ‘professional plaintiffs,’ ‘paid testers,’ or “serial litigants” can have tester standing to sue for [ADA] violations because a plaintiff’s motive for going to a place of public accommodation is irrelevant to standing.”
Where a plaintiff’s actual purpose in visiting premises was to detect violations that could give rise to a lawsuit or a threat of one, it remains unclear the extent to which this casts in doubt whether the requisite of an intent to patronize the business in the future if it became ADA compliant was met.
Prosecutors’ Lawsuit
An action was filed in San Francisco Superior Court on April 11, 2022, against Potter Handy and members of the firm by the district attorneys of San Francisco and Los Angeles under the Unfair Competition Law. The complaint included a reference to Lozano, saying:
“In part, the high cost of defending against one of Potter Handy’s fraudulent lawsuits is because Defendants demand large cash settlements even if the sued business quickly fixes all potential violations, will not dismiss cases they know they would lose if litigated to judgment, intentionally run up their attorney’s fees so they can make higher settlement demands, and generally refuse to engage in good faith negotiations, thereby wearing out their small business targets and further pressuring them into settling cases. For example, in Longer v. Badger Co…,. Defendants Handy and Carson were sanctioned by the federal Southern District of California (Chief Judge Lany Alan Burns) for intentionally proceeding with a Serial Filer ADA claim against a business that had already shut down, eliminating the Serial Filer’s standing to seek an injunction and rendering the ADA claim moot. Perhaps even more egregiously, Defendants Potter and Grace were recently sanctioned by the federal Southern District of California (Judge John Houston) for filing a case on behalf of longtime Serial Filer Enrique Lozano. In 2001, Defendants filed and subsequently settled an ADA case on behalf of Mr. Lozano against Beamspeed, an internet service provider located in Calexico, California. In 2014, Defendants filed another case on Mr. Lozano’s behalf against Beamspeed, alleging the exact same disabled parking violation Defendants had already agreed was cured in the 2001 case’s settlement.”
(Bumpspeeed was Cabrera’s tenant in 2014; he had a different tenant in 2001.)
San Francisco Superior Court Judge Curtis E.A. Karnow ordered dismissal of the UCL action based on the litigation privilege.
Tuesday’s decision came in Lozano v. Cabrera, 22-55273.
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