PLAINTIFFS' BAYCOL STEERING COMMITTEE, KENNETH B. MOLL KENNETH B. MOLL & ASSOCIATES, LTD. v. BAYER CORPORATION BAYER AG GLAXOSMITHKLINE, PLAINTIFFS' BAYCOL STEERING COMMITTEE, K. AMY LEMON v. BAYER CORPORATION BAYER AG GLAXOSMITHKLINE

Citations: 419 F.3d 794; 2005 U.S. App. LEXIS 17577Docket: 04-2097

Court: Court of Appeals for the Eighth Circuit; August 19, 2005; Federal Appellate Court

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Kenneth B. Moll and K. Amy Lemon, appellants in the Baycol Multi-District Litigation (MDL), seek to overturn sanctions imposed by the district court. The court sanctioned Moll by removing him and his firm, Kenneth B. Moll Associates Ltd. (KBM), from the plaintiffs' steering committee (PSC) and imposing a $50,000 fine for committing perjury, violating pretrial orders, and breaching the Minnesota Rules of Professional Conduct. Lemon was barred from practicing law in the District of Minnesota for similar violations. The Eighth Circuit Court affirms Moll's removal from the PSC but vacates the $50,000 sanction and remands for further proceedings. It also reverses the sanctions against Lemon.

The Baycol litigation pertains to a cholesterol medication withdrawn from the market in August 2001, with Bayer Corporation and GlaxoSmithKline as defendants. The PSC, appointed to coordinate pretrial proceedings, included Moll and KBM among its members. Pre-Trial Order (PTO) 18 mandated electronic filing through Verilaw Technologies, prohibiting traditional paper submissions and requiring specific signature protocols. PTO 24 restricted the disclosure of confidential documents produced in the litigation, stipulating that unauthorized disclosure could lead to sanctions.

In August 2002, Moll arranged a meeting with Italian prosecutor Raffaelle Guariniello at the request of the PSC to discuss a criminal investigation into Bayer A.G. managers and review relevant documents. Moll met Guariniello in October 2002 in Torino, Italy, where he provided non-privileged documents and promised to file a motion that would grant Guariniello access to privileged documents. During this meeting, a teleconference included PSC members in the U.S., who were instructed to gather non-privileged documents for Guariniello. Following the teleconference, Ron Goldser emailed Guariniello two attached documents containing Bayer’s confidential information, with instructions for Guariniello to allow Moll to review them for confidentiality first. Guariniello opened the attachments without reading the email, and Moll viewed the documents with him, which were marked "CONFIDENTIAL. SUBJECT TO PROTECTIVE ORDER."

On October 21, 2002, Moll received an email from Guariniello's assistant inquiring about access to privileged documents. In December 2002, Moll and KBM associate Hal Kleinman corresponded with Solia about preparing a motion to intervene. Kleinman later communicated with Solia and Guariniello, thanking them for assistance in obtaining Baycol documents. However, after March 5, 2003, communication ceased until June 2003.

Lemon, who joined KBM in late May 2003, was assigned by Moll to prepare the memorandum and motion to intervene, with existing declarations needing her attention. On June 5, Lemon emailed Guariniello's declaration to Solia, requesting a signed copy. After not receiving a response by June 10, she attempted to contact Guariniello directly. That same day, she sent a draft of the motion papers to PSC members, receiving minimal feedback. On June 11, she was advised by Mike Nast to coordinate the filing of the motion with Robert Shelquist of LGN, who would file documents for the Baycol MDL as a courtesy.

On June 12, Lemon, Moll, and Sonia Kinra of KBM convened to address the lack of Guariniello’s signature on a motion due for filing by that day. Moll attempted to contact Guariniello’s office but was unsuccessful, prompting Lemon to call Shelquist at LGN to inform him of the missing signature. Lemon testified that she spoke with Shelquist before emailing the motion at 3:56 p.m., relaying that KBM lacked Guariniello's signature and seeking his guidance. Shelquist allegedly instructed her to use a "signature on file" notation and proceed with the filing.

In contrast, Shelquist claimed he did not speak with Lemon until after 4:00 p.m., after receiving the motion draft, and believed at that point that KBM had the signed declaration. He denied instructing Lemon to file the unsigned declaration and stated he was unaware that it was unsigned until July. He noted that while he preferred having the signature on file, he had previously allowed filings with the "signature on file" notation under time constraints without issue.

LGN filed the motion via Verilaw at 4:15 p.m., with both Moll's and Guariniello's declarations including the "s/ Signature on File" notation, despite neither being signed. Moll only learned about the motion's filing after receiving confirmation from Verilaw, expressed surprise at the permission given to file without proper signatures, and told Lemon that the filing was improper. Later that evening, Lemon sent an email to Guariniello’s office requesting his signature.

Moll and Lemon continued to seek Guariniello's signature on a motion even after it was filed. On June 16, Solia informed Lemon that Guariniello would not sign his declaration, opting instead to pursue privileged documents through rogatory means. Lemon communicated to Guariniello that a motion was prepared on his behalf, while Moll advised Guariniello he could pursue both rogatory and motion options, to which Guariniello expressed discomfort. On June 23, Bayer's counsel requested Guariniello's signed declaration. Moll acknowledged to Weber that the PSC lacked a signed declaration and indicated that the motion to intervene would be withdrawn. Moll then instructed Lemon to inform Shelquist of the withdrawal and to verify instructions regarding the filing of Guariniello's declaration without an original signature. Lemon's email to Shelquist did not include this verification request. The PSC formally withdrew the motion on June 26.

Bayer investigated the circumstances surrounding the filing and withdrawal of the motion, leading to depositions of Moll, Lemon, and Shelquist in September 2003. Lemon, represented by Lupel, resigned from KBM the day after her deposition. Due to inconsistencies in testimony, Bayer obtained telephone records from LGN and KBM for June 12, which documented multiple calls between the two entities. On January 14, 2004, Bayer filed a motion for sanctions against Moll and KBM, but not against Lemon, who was not notified of the motion or the subsequent hearing held on February 24, 2004, where arguments were presented by counsel for LGN, Bayer, and KBM without Lemon's presence or representation.

On April 12, 2004, the district court issued sanctions against attorney Moll for committing perjury, violating pretrial orders, and breaching the Minnesota Rules of Professional Conduct. The court exercised its inherent authority to remove Moll and KBM from the PSC and imposed a $50,000 monetary sanction on Moll. Additionally, although Bayer did not seek sanctions against attorney Lemon, the court took action sua sponte, finding her deposition testimony conflicted with telephone records. The court determined that Lemon committed perjury by claiming she was instructed to file a motion to intervene without a signature on file, and that she, along with Moll, concealed that the motion was filed without a signed original declaration. Consequently, the court prohibited Lemon from practicing law in the District of Minnesota, and she was informed of this sanction via mail from Lupel. The court also directed the clerk to notify the Illinois Attorney Registration and Disciplinary Commission and the U.S. Attorney for the District of Minnesota.

The excerpt also discusses the inherent powers of courts, emphasizing that such powers are essential for judicial function, including the authority to discipline attorneys. This power must be exercised with caution and in compliance with due process, which requires notice and an opportunity for the individual to be heard before sanctions are imposed. The review of a district court's sanctions under its inherent power is for abuse of discretion, and such an abuse occurs if the court misapplies the law or misjudges the evidence.

Moll asserts that the district court abused its discretion by imposing sanctions, claiming the court incorrectly found his actions related to the motion to intervene constituted perjury, violated Pretrial Order (PTO) 18, and breached the rules of professional conduct, indicating bad faith. He also disputes the court's conclusions regarding his conduct involving Guariniello's access to confidential documents under PTO 24 and Rule 3.4(c) and contends that the sanctions were excessive. 

In evaluating Moll's claims, the court first considers whether it clearly erred in its findings of perjury, violations of pretrial orders, and bad faith. The court then assesses whether it abused its discretion in imposing sanctions. 

Concerning the motion to intervene, the district court found that Moll committed perjury, violated PTO 18, and breached multiple professional conduct rules while acting in bad faith. The appellate court upheld the district court's findings regarding the violations of PTO 18, Rules 3.4(c), 8.4(c), and 8.4(d), and the demonstration of bad faith. However, it found that the district court clearly erred in determining that Moll committed perjury and violated Rule 8.4(b) and Rule 3.3(a)(1).

The district court's conclusion of perjury was based on Moll's submission of declarations that he knew were not properly signed. It also found Moll misrepresented himself as "counsel for the purpose of" Guariniello's motion to intervene. Consequently, it determined Moll violated Minnesota Rule of Professional Conduct 8.4(b), which pertains to criminal acts reflecting on a lawyer's honesty, and Rule 3.3(a)(1), prohibiting false statements to a tribunal. 

Moll argues that perjury requires criminal intent, which he claims is absent in his case, citing a communication breakdown as the cause for the improperly filed documents. He contends he believed Guariniello consented to the declaration and that he was unaware the motion was filed without the signature page. Moll maintains that he had a good faith belief that Guariniello wanted him to file the motion to intervene to access confidential documents, asserting that this belief prevents a finding of perjury or violations of the specified conduct rules.

The district court dismissed Moll's claim of having a reasonable belief that Guariniello wanted him to act as his attorney and file a motion, citing Guariniello's lack of a signed declaration and his non-responsiveness to emails requesting his signature. The court emphasized that Moll was aware of the unsigned declaration at the time of filing and characterized the submission of an unsigned document as willful misconduct. It stated that Moll, as a member of the Executive Committee, had a duty to prevent improper filings and criticized his failure to act promptly upon realizing the issue, instead attempting to retroactively obtain Guariniello's signature.

Regarding the finding of perjury, the court held that the record did not support such a conclusion. Perjury requires willful intent to provide false testimony about a material matter, which was not demonstrated by Moll's actions or statements. While acknowledging that Lemon may have improperly filed the motion with a false signature, there was no evidence that Moll instructed her to do so. Furthermore, Moll's statement in his declaration asserting he was counsel for the purpose of filing the motion was deemed not to have been made with intent to deceive, as he was indeed acting as counsel at the time of drafting the declaration, even if less so at the time of filing. Thus, the court found that Moll's failure to rectify the improper filing constituted a violation of procedural rules but did not amount to perjury.

The record does not support the conclusion that Moll violated Rule 3.3(a)(1) or Rule 8.4(b). However, the district court determined Moll violated PTO 18 by filing a motion to intervene without Guariniello's signature, which he was required to have on file. PTO 18 mandates that an attorney filing a document with an electronic signature must make the original signature available upon request and certifies that all signatories agree to the document's content and that the filer has actual authority to submit it. This violation also constituted a breach of Minnesota Rule 3.4(c), which prohibits knowingly disobeying a tribunal's rules.

Moll contended he did not intentionally violate these rules, believing he had Guariniello's authority due to a lack of objections to a draft he sent. He claimed that LGN was the actual "filer" of the motion and argued there was no evidence he knew the declaration would be filed without Guariniello's signature. Nonetheless, the district court found no clear error in its conclusion that Moll knowingly disobeyed PTO 18. Evidence indicated Moll lacked Guariniello's express agreement to the motion's form and substance, and a three-month absence of communication from Guariniello undermined Moll's defense. Furthermore, Moll's instruction to seek advice regarding the unsigned declaration and his own acknowledgment of the impropriety of filing it without a signature contradicted his claims of permission.

Additionally, the district court found Moll violated Minnesota Rule 8.4(c) and (d) by attempting to conceal the absence of Guariniello's signature, as these rules address dishonesty and actions prejudicial to the administration of justice.

Moll attempted to secure a signed declaration from Guariniello after filing a motion but later recognized that Guariniello no longer consented, leading to the motion's withdrawal. Moll contends he did not intentionally mislead Bayer or the court, admitting to Bayer's counsel that KBM lacked the signed document. However, the district court found Moll in violation of Rules 8.4(c) and 8.4(d), determining that he engaged in dishonest conduct by trying to conceal his actions, knowing as early as June 12 that Guariniello had not signed. Despite learning by June 16 that Guariniello would not sign, Moll did not notify the court or opposing counsel, nor did he withdraw the motion until June 23, coinciding with Bayer's request for the signature. This behavior cast doubt on the integrity of electronic signatures and affected the administration of justice in the Baycol MDL, revealing bad faith.

Additionally, the district court sanctioned Moll for violating PTO 24 by allowing Guariniello access to Bayer's confidential documents, which also breached Rule 3.4(c). The court held that Moll's failure to protect confidential information justified sanctions due to bad faith. Moll argued that any disclosure was inadvertent, emphasizing that he instructed the sending attorney to only include non-privileged information and that the confidential email was sent directly to Guariniello without his review.

Moll, while not the sole attorney responsible for disclosing confidential documents to Guariniello, engaged in conduct warranting sanctions. Despite being aware that the documents contained confidential information, he failed to take any protective actions after realizing their nature, even as Guariniello accessed them. The documents were clearly marked as "CONFIDENTIAL. SUBJECT TO PROTECTIVE ORDER," yet Moll did not intervene or notify the court, thereby violating PTO 24 and Rule 3.4(c). The district court's findings regarding Moll's misconduct were deemed reasonable and not clearly erroneous.

Regarding sanctions, Bayer proposed several measures, including Moll's removal from the Plaintiff Steering Committee (PSC) and a $50,000 fine against him personally. The district court decided to remove both Moll and his firm, KBM, from the PSC and imposed the monetary sanction. Moll's actions demonstrated poor judgment and a lack of integrity, leading the court to conclude he was unfit for PSC responsibilities. The district court did not abuse its discretion in imposing the $50,000 fine, despite Moll arguing it was excessive compared to lesser sanctions in prior cases. Bayer countered that the amount was justified based on the severity of Moll's unethical behavior. The comparison was made to the case In re Kujawa, where a significant attorney's fee was assessed as a remedial measure, distinguishing it from punitive sanctions.

The imposition of a $100,000 punitive sanction was deemed an abuse of discretion as it was not adequately linked to addressing the attorney's misconduct or deterring future actions. The court emphasized that sanctions should be limited to amounts sufficient for deterrence. The $50,000 sanction imposed on Moll was found not to compensate Bayer for fees incurred due to Moll's conduct, as it was directed to the court's clerk rather than for specific costs incurred. The record did not support that this amount was necessary to deter Moll’s future misconduct. Previous cases were cited where sanctions were tailored to reimburse actual court costs, underscoring that a substantial fine, when not connected to specific harm, resembles a criminal penalty requiring the procedural protections of a criminal trial. The district court's failure to justify the sanction amount hindered proper evaluation, necessitating a clear explanation for such significant sanctions. Consequently, the $50,000 sanction against Moll was vacated and the matter was remanded for further proceedings. Additionally, sanctions were imposed on Lemon, prohibiting her from practicing law in Minnesota due to perjury and violations of professional conduct rules.

Lemon successfully argues against the district court's order barring her from practicing law in Minnesota, specifically challenging the imposition of sanctions without prior notice, violating her procedural due process rights. The court held that Lemon was not informed of the potential sanctions until after they were decided, as her first notice came through a mailing from opposing counsel. Lemon had resigned from her firm before any sanctions were sought against it or her, and there was no indication that she was aware of any disputes concerning her testimony. The court noted that mere knowledge of ongoing motions was insufficient for due process; actual notice of the sanctions consideration was required.

Furthermore, the district court's failure to notify Lemon deprived her of the opportunity to respond, leading the court to incorrectly interpret her lack of response as evidence of perjury. The court based its finding of perjury on Lemon's failure to submit a brief disputing the evidence against her, despite her not being given notice to do so. The court also mischaracterized her testimony regarding the length of a conversation with another party, failing to consider that Lemon could have clarified her statement had she been properly notified. 

In conclusion, the court affirmed the removal of Moll and his firm from the PSC, vacated the $50,000 sanction against Moll, and reversed the sanctions imposed on Lemon.