MacHeska v. Thomson Learning

Citations: 347 F. Supp. 2d 169; 60 Fed. R. Serv. 3d 438; 2004 U.S. Dist. LEXIS 24570; 2004 WL 2801044Docket: 3:03 CV 1942

Court: District Court, M.D. Pennsylvania; December 7, 2004; Federal District Court

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Nadia Macheska voluntarily dismissed her claims against Thomson Learning and Harcourt Learning Direct, prompting the defendants to file a Motion for Fees and Costs against her attorney, Paul M. Jennings, under 28 U.S.C. 1927. The case stemmed from Macheska's termination on September 17, 2001, and her assertion that she lacked the capacity to execute a Separation Agreement and General Release signed on November 5, 2001. After limited discovery and an unsuccessful attempt to appoint a guardian for Macheska, she withdrew her claims in July 2004. The defendants' motion seeks reimbursement for fees and costs incurred from March 1, 2004, to July 7, 2004. The court will review Jennings’ conduct as Macheska's counsel during the case. Macheska, employed by Thomson for 33 years, was diagnosed with an adjustment disorder and was terminated after a tumultuous period. Thomson offered her a Release that included severance pay, benefits, and job counseling. Macheska consulted multiple attorneys about her situation, starting with Joseph Sileo, who found no signs of incapacity during their discussions and recommended accepting the severance package. She subsequently consulted Doug Thomas and was referred to employment lawyer Andrew Katsock, both of whom also met with her regarding her options.

Both attorneys involved confirmed Macheska's competence during their meetings and subsequent conversations, strongly advising her that the severance package from Thomson was advantageous. They concluded that Macheska signed the Release knowingly and voluntarily after a thorough evaluation of her options. Macheska had also been under the care of two physicians during this time. Dr. Richard Martin, her treating physician since before 2000, diagnosed her with "adjustment disorder with depressive mood" but found her competent and able to understand the Release, even referring her to attorney Thomas for legal guidance. Psychiatrist Dr. Daniel de Soto evaluated her as moderately stable, alert, and capable of consenting, concluding she was competent to consider the severance offer and sign the Release. The evidence strongly indicates Macheska was competent during this period, bolstered by consultations with three attorneys and two physicians, as well as Thomson's extension of the statutory waiting period three times to allow her further consideration. Despite this, Jennings, who later consulted Macheska and filed a complaint after the statute of limitations was nearing expiration, failed to properly investigate the circumstances surrounding her execution of the Release. Both attorneys provided affidavits stating that Jennings did not inquire about Macheska's mental capacity or the execution context of her severance agreement. Jennings' complaint, filed on October 30, 2003, alleged violations of the Americans with Disabilities Act and the Family and Medical Leave Act regarding Macheska's termination.

Jennings made several misleading assertions in his complaint against Thomson regarding Macheska's ability to make informed decisions. He claimed Macheska could not understand the Release, yet he did not consult with her attorneys or physicians who confirmed her competence. Jennings misrepresented the findings of his retained expert, Dr. Fishbein, who, under the false impression that Jennings would provide supporting declarations regarding Macheska's incompetence, created a report suggesting she needed legal advice. After Jennings expressed concerns about the initial report, Dr. Fishbein revised his conclusions based on Jennings' misleading information, failing to consider that Macheska had consulted with both a psychiatrist and her treating physician, who deemed her competent. Additionally, Jennings misled another expert, Dr. Church, indicating there was support to invalidate Macheska’s signature without factual basis. Following the filing of the complaint, Thomson moved for summary judgment, arguing that Macheska had signed the Release and therefore waived her rights to sue.

Oral argument on Thomson's Motion occurred on February 19, 2004, resulting in the denial of the Defendant's Motion to Dismiss and a deferral on the Motion for Summary Judgment. The Court allowed a 90-day discovery period to enable Macheska to gather evidence supporting her claim that the Release did not bar her lawsuit. Jennings indicated that expert testimony could substantiate Macheska's lack of capacity to sign the Release, although her claims seemed weak. Following this, Jennings requested the Court's assistance in appointing a legal guardian for Macheska, citing her inability to understand the litigation. He also sought a stay of proceedings while pursuing guardianship, stating he would recommend that Macheska withdraw her case due to its lack of merit. Jennings conceded this point to both opposing counsel and the Court, indicating a recognition that the case should not proceed. The referenced 66 weeks pertained to resumed payments, not additional compensation from Thomson. On March 1, 2004, an informal conference call was held where Jennings reiterated his concerns about Macheska's competence and intended to seek guardianship, but Thomson's counsel refused to extend discovery deadlines. Jennings was advised to file a formal motion for an extension, which he did not do, leading to the deadlines remaining unchanged. Subsequently, a guardianship action was filed for Macheska in the Lackawanna County Court of Common Pleas.

The examination of the record reveals that the guardianship action for Macheska was withdrawn on June 30, 2004, just before a final order for guardian appointment was to be entered. During the guardianship proceedings, discovery continued without a stay, and several depositions were taken by Thomson, despite Jennings’ belief that the case should be withdrawn due to lack of merit. Jennings did not file a motion to stay or withdraw as counsel, allowing Thomson to accrue significant discovery costs. Although Jennings had previously indicated to the court and others that he recommended withdrawal of the case, he later proposed a settlement of $26,000, which Thomson rejected. Following this, Jennings ceased negotiations, leading to the discontinuation of the guardianship action and the underlying suit shortly thereafter. Additionally, Thomson had consistently communicated its intention to seek fees and costs from Jennings, citing breaches of the severance agreement, including a March 17, 2004 letter warning that continued litigation was a breach, and subsequent letters indicating intentions to recover costs related to the case dismissal.

Attorney Beard's letter dated April 22, 2004, expressed the client's distress over escalating costs related to what they deemed a frivolous lawsuit. Beard urged the opposing party to clarify any misunderstandings regarding evidence or reconsider the continuation of the case. He offered that if the lawsuit was dismissed with prejudice before the deposition of Dr. de Soto on April 30, the client would refrain from further actions, although they maintained that the lawsuit breached a release agreement, forfeiting severance benefits.

On June 8, 2004, attorney Sundheim reiterated concerns about the lawsuit's frivolous nature and warned that if additional resources were required for a motion for summary judgment, they would seek sanctions under Federal Rule of Civil Procedure 11, request attorneys' fees under the ADA, and consider pursuing a separate action for wrongful use of civil proceedings in Pennsylvania. Sundheim urged immediate withdrawal of the complaint with prejudice.

Despite these warnings, Jennings allowed Thomson to incur substantial defense costs, totaling $99,396.22, which included attorney's fees, costs, and expert witness fees. Thomson's legal counsel, Pepper Hamilton LLP, billed monthly, but detailed attorney fee breakdowns were not provided, complicating precise calculations.

The document highlights Jennings' significant errors, including his failure to seek a stay of discovery after initiating a guardianship action in state court, despite recognizing that the case should be withdrawn. Jennings also had options to terminate his relationship with the client or seek court permission to withdraw, none of which he pursued. As a result, Thomson's incurred costs will be evaluated alongside Jennings' defenses against Thomson's motion. Additionally, Jennings raised a threshold issue regarding the effect of Thomson's stipulation of dismissal on the current motion.

Jennings contends that Thomson's right to recover fees and costs was waived by the stipulation of dismissal under Fed. R. Civ. P. 41(a)(1). The court rejects this argument, clarifying that Thomson's motion is based on 28 U.S.C. § 1927, which permits the court to require attorneys to cover excessive costs incurred due to unreasonable and vexatious multiplication of proceedings. Jennings argues that the court lost subject matter jurisdiction after the voluntary dismissal with prejudice, but the court cites Fed. R. Civ. P. 54, stating that the time limits for filing fee motions do not apply to sanctions claims under Rule 11 or 28 U.S.C. § 1927. Courts have consistently ruled that a voluntary dismissal does not strip the district court of jurisdiction over fee motions related to § 1927. 

The court references Bolivar v. Pocklington, where the First Circuit characterized a § 1927 motion as a collateral matter, affirming that jurisdiction remains intact post-dismissal. The Supreme Court's ruling in Cooter & Gell v. Hartmarx Corp. similarly supports this view, allowing for enforcement of Rule 11 even after a notice of dismissal. Justice Stevens' concurrence extends this reasoning to § 1927 motions, emphasizing that a dismissal does not absolve attorneys of responsibility for their conduct.

Jennings argues that changes to Rule 11 invalidate the applicability of Cooter & Gell to § 1927 motions, but courts have upheld these precedents following the 1993 amendments. The court also addresses Jennings' cited unpublished cases. Sokoloff v. General Nutrition Co. rejected a motion for fees based on franchise agreement terms rather than § 1927 sanctions, while Dorfman v. Law School Admission Council denied fees because the case ended on a motion to dismiss, saving trial costs but not discovery costs. The court acknowledges that while fees should generally be granted only in "exceptional circumstances," such circumstances exist in this case due to Jennings' prolonged litigation efforts despite acknowledging that the case should be withdrawn, resulting in unnecessary discovery expenses.

Thomson is permitted to assert a motion under 28 U.S.C. § 1927 despite a previous stipulated voluntary dismissal. To award fees and costs under this statute, a court must find that counsel (1) multiplied proceedings, (2) in an unreasonable and vexatious manner, (3) increasing the costs, and (4) acted in bad faith or with intentional misconduct. The Third Circuit defines bad faith broadly, emphasizing that it is a factual determination for the District Court. Bad faith is evident when meritless claims are advanced with knowledge of their lack of merit and an improper motive, such as harassment. Jennings demonstrated bad faith through admissions that his client's case had no merit and his failure to withdraw or terminate the litigation promptly.

The court notes that sanctions under § 1927 should be used sparingly, referencing the Supreme Court's caution against post hoc reasoning. Here, the court found no need for hindsight as Jennings himself indicated the case should be withdrawn. Sanctions cannot cover all fees incurred by Thomson but are limited to unnecessary actions taken after the complaint was filed. Jennings’ most egregious misconduct occurred after he acknowledged the futility of the case. Although his actions prior to March 1, 2004, were questionable, they did not warrant sanctions. However, after that date, Jennings clearly recognized the lack of merit in the case and failed to act accordingly, justifying the imposition of sanctions to deter such behavior.

The document outlines the court's concerns regarding Jennings' conduct in representing his client, Macheska, particularly after he admitted that her case lacked merit. Despite this acknowledgment, Jennings continued to seek a minimal settlement as late as June 2004, raising questions about his ethical obligations. The court noted that Jennings initiated a guardianship proceeding for Macheska, which ceased once his settlement attempt failed, suggesting a sudden change in Macheska's competence to direct her legal actions. The court criticized Jennings for not fulfilling his obligations to Macheska and Thomson, leading to a consideration of awarding Thomson the costs and fees incurred after March 1, 2004, in defending against Jennings' actions. The court ordered Jennings' counsel to provide an itemized statement of fees and costs from March 1, 2004, to July 7, 2004, while acknowledging the lack of breakdown of these costs thus far. The document also references Macheska's release agreement with Thomson Learning, which includes her waiver of all claims related to her employment, her acknowledgment of having consulted an attorney regarding the agreement, and her irrevocable release of Thomson from any related complaints. Additionally, it highlights some confusion regarding a memo addressed to Macheska but mistakenly included a cover sheet for Dr. Fisehbein, although this discrepancy was deemed immaterial to the court's decision. Lastly, the court noted a backdated report that raised further concerns about Jennings’ actions.