Cleveland Hair Clinic, Inc. v. Puig

Citations: 200 F.3d 1063; 2000 WL 12138Docket: No. 99-1417

Court: Court of Appeals for the Seventh Circuit; January 9, 2000; Federal Appellate Court

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Michael L. Tinaglia, a Chicago attorney with a previously unblemished record, faced legal trouble not for his initial actions, but for his subsequent attempts to conceal those actions from a federal court. In 1996, Tinaglia represented Dr. Carlos J. Puig, who sought to take control of the Cleveland Hair Clinic (CHC) after terminating his contract with them. CHC, an Ohio corporation, accused Puig of breaching his contract and fiduciary duties, prompting Puig to seek a temporary restraining order (TRO) for patient medical records. After the federal court denied Puig’s TRO motion, Tinaglia and Puig devised a plan to circumvent federal jurisdiction by filing a state lawsuit, where the plaintiff would be Rodney Haenschen—an ally of Puig—against Richard Malmin, CHC’s manager. Tinaglia arranged for attorney Joseph Curcio to represent Haenschen in the state action.

Upon learning of this maneuver, CHC filed an emergency motion in federal court to add Haenschen as a defendant and prevent him from pursuing claims in state court. The federal court scheduled a hearing for the same day. Tinaglia received notice of CHC’s motion shortly before the hearing and quickly contacted Haenschen, who then signed documents prepared by Tinaglia’s firm. Curcio filed the state complaint just moments after the federal hearing began, but evidence, including phone and fax records, indicated that Tinaglia orchestrated the state lawsuit while attempting to mislead the federal court about his involvement. This lack of transparency ultimately led to Tinaglia's legal troubles.

Tinaglia represents defendant Puig and the Puig Medical Group, explicitly stating he does not represent Dr. Haenschen. During a hearing, he confirmed that he had not communicated with Haenschen since a notice regarding an emergency matter was issued. When questioned about whether Haenschen has legal representation, Tinaglia indicated he last spoke to Haenschen over the weekend and advised him that it would be inappropriate to represent both Puig and Haenschen, to which Haenschen acknowledged he was “on his own.” 

Following the hearing, sanctions were sought by CHC due to misconduct related to a state complaint involving Haenschen. After a six-day evidentiary hearing, Judge Shadur found Tinaglia, his firm, Puig, the Puig Medical Group, and Haenschen liable for CHC's legal expenses. The calculation of legal costs occurred in two phases: initially, it was agreed that at least $174,121 in expenses were incurred, but further expenses were disputed. Tinaglia opted not to participate and instead filed two appeals that were dismissed. In the second phase, an additional $85,000 in legal costs was stipulated. Ultimately, sanctions totaled $60,777.50 from Puig, $15,000 from Haenschen, and $185,143.53 from Tinaglia, which included significant attorney fees and a fine for contempt.

Tinaglia appeals a sanction imposed by the district court, arguing he did not engage in sanctionable conduct and that, if he did, the sanction was excessive. The review standard for such sanctions is for abuse of discretion. Tinaglia contends he did not lie to Judge Shadur about representing Haenschen, asserting he meant he was not representing him in the federal case, despite having represented Haenschen during a deposition in that case shortly thereafter. The court questions the credibility of this claim, noting that Tinaglia had been actively working with Haenschen and Puig on related state court matters. Tinaglia admits to representing Haenschen in state court at the time but claims his statements about Haenschen being "kind of on his own" were misinterpreted. He also suggests that his obligation to maintain client confidentiality outweighed his duty to disclose the existence of the state lawsuit; however, the court finds this assertion contradictory and unconvincing. The court emphasizes that an attorney's duty to be honest with the court supersedes the duty to maintain client confidentiality. This principle is reinforced by the Rules of Professional Conduct, which state that candor to the tribunal must take precedence over zealous advocacy.

Claiming a privilege must be done openly, not through concealment, as emphasized by CHC. Tinaglia was obligated to disclose a concurrently filed state lawsuit, as lawyers have a duty of candor to the court; violations can result in severe sanctions beyond mere fee payments. Counsel must inform the court of developments that could impact litigation outcomes. The state lawsuit aimed to preempt the federal case, which was relevant to the federal court's proceedings regarding party additions and injunctions. Tinaglia's counsel suggested confusion as an excuse for his misrepresentations, but this was deemed implausible given the context. Tinaglia's dishonesty warranted sanctions, with the amount of $259,121 in attorney fees attributed to his misconduct raising questions about the specificity of the sanction's basis. The district court did not clarify whether the sanctions were based on Federal Rule of Civil Procedure 37, 28 U.S.C. 1927, or the court's inherent power, nor did it specify the timing and nature of Tinaglia's misconduct leading to the sanctions. Despite finding the sanction amount excessive, Tinaglia's objection was viewed as too late due to his noncompliance with a court order and his waiver of objections by boycotting the proceedings. During later participation, Tinaglia acknowledged that, if misconduct occurred, CHC incurred additional fees of $85,000. The court determined that the district court acted within its discretion in sanctioning Tinaglia for dishonesty and that he waived objections to the sanction amount. Additionally, CHC deemed Tinaglia's appeal frivolous and sought fees for this appeal, with the court noting that imposing sanctions for frivolous appeals is discretionary.

An appeal is deemed frivolous when the outcome is clear, as established in Tomczyk v. Blue Cross, Blue Shield United of Wis. Tinaglia's attempts to evade accountability for his misleading statements to the district court were unpersuasive, particularly given the deferential standard of review on appeal. Although Tinaglia may have had valid concerns regarding the severity of the sanctions, he forfeited his right to contest the sanction amount by not participating in the initial fact-finding and by agreeing to the amount in a subsequent round. Despite the harshness of the sanction, the court determined that additional sanctions in the form of attorneys' fees for this appeal were unwarranted.

The court noted an additional concern about Tinaglia's attorney, Jerome H. Torshen, whose performance during oral arguments raised questions about ethical representation in a case involving unethical conduct. Torshen argued that sanctions should only pertain to behaviors occurring on July 1, based on a misinterpretation of a footnote from a prior opinion, which clarified that prior findings did not include evidence from the sanctions hearing. The court suggested that Torshen may have distorted the footnote's meaning, which did not preclude a finding of misconduct by Tinaglia before June 27. The court emphasized the importance of honest representation and adherence to legal standards, warning that crossing into unethical advocacy could lead to sanctions against attorneys as well.

Under Federal Rule of Appellate Procedure 46(c), attorney Jerome H. Torshen is granted 14 days to show cause for potential sanctions due to alleged misleading conduct related to a footnote in the district court's opinion. The court affirms the previous judgment and issues an order for Torshen to respond. Following Torshen's response, the court concludes he did not intentionally mislead the court regarding the footnote, exonerating him from any accusations of unprofessional conduct and withdrawing any implications to the contrary from the prior opinion. The underlying litigation involved a preliminary injunction against Puig, who was found to have violated an agreement with CHC, leading to his bankruptcy and a subsequent settlement. Additionally, when Tinaglia refused to pay sanctions, Judge Shadur found him in contempt and imposed a daily fine until payment was made, indicating Tinaglia's involvement in prior misconduct, including liability for Puig and Haenschen’s actions related to a "baseless" TRO motion.