Court: District Court, S.D. Florida; March 4, 2012; Federal District Court
Defendants filed a Verified Motion for Attorney’s Fees and Sanctions, claiming the lawsuit was frivolous, along with three supplements for additional fees. The Court referred all motions for costs and fees to Magistrate Judge Goodman after a change in magistrate from Judge Torres. The Magistrate Judge provided a Report and Recommendation on the Motion to Tax Costs, which the Court adopted, while objections were raised regarding the referral of the Motion for attorney’s fees. To address this, the Court specifically referred the attorney’s fees motion to Magistrate Judge Goodman for a Supplemental Report. The Supplemental Report recommended granting in part and denying in part the attorney’s fees motion, specifically awarding $8,340.00 against two of the Plaintiffs’ attorneys (J.H. Zidell and David Kelly) under 28 U.S.C. § 1927, while denying fees against attorney Daniel Feld and the Plaintiffs. The recommended fees were to be jointly and severally awarded against Zidell, Kelly, and their law firm, broken down into specific amounts for previous motions and supplements. The Court reviewed objections to the Magistrate Judge's Report and found them without merit, ultimately deciding not to adopt the initial Report but to ratify the Supplemental Report in its entirety. The Plaintiff’s Motion for Attorney’s Fees was granted in part and denied in part, with a total award of $8,340.00 to be paid jointly and severally by the specified attorneys and their firm.
Defendants filed a Verified Motion for Attorney’s Fees and Sanctions related to a frivolous lawsuit, along with three supplements seeking additional fees. U.S. District Judge Donald L. Graham referred the matter for a supplemental report and recommendations. The Court reviewed the Defendants' motion, Plaintiffs' response, and subsequent replies and objections. The Court recommends that the motion be granted in part and denied in part, specifically awarding $8,340.00 in attorney’s fees against two of the Plaintiffs’ attorneys, J.H. Zidell and K. David Kelly, under 28 U.S.C. § 1927, while denying the request for fees against attorney Daniel Feld and the Plaintiffs themselves. The recommendation includes joint and several liability for fees against two of the three Plaintiffs’ attorneys and their law firm, though not specifically under § 1927 due to its application to individual attorneys rather than firms. The Court intends to use its inherent power for a fees award against the law firm. The fees awarded are significantly reduced due to the Defendants' entitlement being limited to the period after the Plaintiffs' claims became non-viable and identified inefficiencies in defense counsel's work. The Court reflects on litigation as a structured conflict, referencing strategies against pursuing meritless claims and emphasizing the importance of knowing when to engage in litigation.
Plaintiffs’ counsel neglected to heed established legal principles by continuing to pursue a lawsuit under the Fair Labor Standards Act (FLSA) despite lacking sufficient evidence for FLSA coverage. This led to the District Court granting Defendants’ summary judgment motion, which was not appealed. In their request for attorney’s fees and sanctions post-judgment, Defendants noted they did not seek a hearing, a stance supported by Plaintiffs who similarly did not request any hearing to present arguments. The Court concluded a hearing was unnecessary due to the comprehensive record from prior litigation.
Defendant Marble Care International, Inc., a small local business owned by Robert Segurola, employed four workers and was alleged by Plaintiffs to have violated FLSA overtime provisions. Plaintiffs claimed, based on belief, that Defendants grossed over $500,000 annually, affecting interstate commerce. However, in response to Plaintiffs’ Amended Complaint, Defendants provided evidence, including an affidavit from Segurola, indicating that Marble Care's gross annual revenue did not exceed $500,000 and had never done so since its inception in 1993. Defendants filed motions to dismiss on this basis, asserting lack of subject matter jurisdiction under the FLSA. Their bank statements revealed that Marble Care’s gross annual sales for the relevant period were just approximately $181,000, well below the statutory threshold.
The motion to dismiss argued that the theory of individual coverage under the FLSA was not applicable to the case. The District Court denied the motion without prejudice, stating that limited discovery on subject matter jurisdiction would assist in determining FLSA applicability. The Court allowed 30 days for discovery focused on whether the action fell under the FLSA, indicating that the motion could be renewed after this period. Subsequently, the Defendants filed a new summary judgment motion reiterating their previous arguments regarding the lack of FLSA coverage. A week prior, the Plaintiffs sought an extension of the discovery and summary judgment deadlines, but their motion was filed after the discovery period had concluded. Defendants opposed this request. Instead of responding substantively to the summary judgment motion, Plaintiffs submitted a "notice of inability to respond." During a discovery hearing, the Court raised concerns about the Plaintiffs' ability to prove that the employer's annual revenues surpassed the $500,000 jurisdictional threshold, noting the employer's small size and limited workforce. The discussion highlighted the difficulty in establishing the required financial criteria under the FLSA, as the Plaintiffs could not provide sufficient evidence regarding the employer's earnings.
On February 4, 2011, Magistrate Judge Torres ordered Defendants to produce bank statements for Marble Care and Robert Segurola. Plaintiffs filed a response to the summary judgment motion on February 18, 2011, after the deadline had passed, prompting Defendants to move to strike the response. The District Court did not rule on this motion but granted Defendants' summary judgment, deeming all pending motions moot. In its March 15, 2011 Order, the Court found that Plaintiffs failed to provide evidence that Defendants' gross annual sales in 2010 exceeded $500,000, thus not meeting the minimum sales requirement for enterprise coverage under the FLSA. Additionally, Plaintiffs did not establish individual coverage, as they could not demonstrate involvement in interstate commerce. Defendant Segurola's declaration stated that no out-of-state purchases or transactions occurred, while Plaintiffs' evidence, including Mr. Rodriguez's affidavit, was undermined by his prior testimony regarding his lack of knowledge about the origin of supplies. Consequently, the Court ruled in favor of Defendants based on a lack of credible evidence supporting FLSA jurisdiction. Plaintiffs did not appeal the summary judgment or final judgment. Defendants subsequently filed a verified motion for attorney’s fees against the Plaintiffs' attorneys and Plaintiffs, citing 28 U.S.C. § 1927 and the Court's inherent power to sanction bad faith conduct, while referencing Local Rule 7.3 for procedural guidance without asserting it as a substantive basis for the fee request.
Defendants, after obtaining summary judgment, filed a motion for attorney fees against certain defense attorneys and their firm, expressing no desire for a hearing. Plaintiffs opposed the motion without requesting a hearing. The Court issued a Report and Recommendations that awarded fees, albeit less than requested, and allowed Defendants to submit for additional fees incurred post-May 17, 2011. Defendants filed a supplemental request, while Plaintiffs objected, arguing that fees should start from September 2010 instead of February 2011. Both parties exchanged objections and responses. Despite a 29-page Report being issued, Plaintiffs sought an evidentiary hearing, which the Court denied. They later submitted a verified response, contending similarities between the current fee motion and one from a different case by the same defense counsel, questioning the necessity of senior partner involvement over that of a junior associate for certain legal services.
Legal standards cited include Section 1927, which allows courts to require attorneys who unreasonably and vexatiously multiply proceedings to cover excess costs and fees. The Eleventh Circuit specifies that to impose sanctions under this section, the attorney's conduct must be unreasonable and vexatious, must multiply proceedings, and must demonstrate bad faith, rather than mere negligence. The Court must decide if Section 1927 sanctions can be applied against law firms, noting that while the Eleventh Circuit has not addressed this directly, other federal appellate courts have ruled that the statute does not apply to law firms.
Appellate courts have determined that the term 'attorney' in the relevant statute does not apply to law firms, which are not recognized as being 'admitted' to practice in federal courts. Citing prior Supreme Court cases, Pavelic and LeFlore, the courts concluded that only the individual who signed a document could face sanctions, not their law firm. Consequently, fees cannot be awarded against the Plaintiffs' law firm, J.H. Zidell, P.A., under Section 1927. However, courts may impose sanctions on attorneys and their firms for bad faith litigation conduct. A finding of bad faith is necessary for fee awards, which can include pursuing claims without reasonable inquiry into underlying facts.
In this FLSA lawsuit, the Plaintiffs are represented by J.H. Zidell, P.A., whose attorneys filed the initial and amended complaints. Defendants argue that the Plaintiffs' claims were frivolous, as they lacked evidence to establish enterprise or individual coverage, failed to investigate Marble Care's gross revenues, and did not send a demand letter prior to filing the lawsuit. The Plaintiffs acknowledged their ignorance of Marble Care's financial records and did not adequately respond to the Defendants’ claims regarding their lack of jurisdictional grounds. The Plaintiffs' response to the sanctions motion lacked verification and did not include an affidavit detailing any pre-suit investigation efforts, which is considered an important factor in determining the legitimacy of their claims.
Plaintiffs failed to provide evidence of a good faith pre-suit inquiry regarding their Fair Labor Standards Act (FLSA) claims, instead reiterating arguments previously dismissed by the district court, which were not appealed. Specifically, Plaintiffs claimed they were unable to pursue FLSA coverage due to Defendants' failure to file tax returns for 2009 and 2010; however, this argument had already been rejected. The court noted that the FLSA does not require proof of annual gross sales solely through tax returns, and Plaintiffs did not reference any legal authority for such a requirement. Furthermore, Plaintiffs asserted they could not adequately discover information pertinent to FLSA jurisdiction due to limited access to Defendants' contracts, but this claim had also been dismissed in an earlier discovery hearing.
Plaintiffs' opposition to the sanctions motion included arguments about insufficient discovery, which the district court had implicitly rejected when granting summary judgment to Defendants. In their response, Plaintiffs disclosed details about settlement negotiations, asserting that they did not violate mediation confidentiality as it was used to argue against bad faith. However, no legal authority was cited to support this claim, and the Local Rule prohibits the use of mediation-derived information for any purpose in court. Although Defendants did not seek sanctions for this potential violation, the court noted that the motion for fees was based on Plaintiffs' lack of a pre-suit inquiry regarding FLSA coverage, their irrelevant discovery efforts to pressure Defendants, and their continued prosecution of a claim without necessary evidence, despite clear evidence showing Marble Care was not subject to FLSA claims.
Plaintiffs’ attorneys, Mr. Zidell and Mr. Kelly, are experienced in litigating FLSA cases, with Zidell involved in 1,078 cases since 1997 and Kelly in 150 since 2006. Despite their expertise, they failed to recognize the substantial jurisdictional challenges posed by Marble Care, a small local company with fewer than five employees. The counsel did not send a pre-suit demand or seek pre-suit discovery, which are critical steps noted in Ortiz v. D. W Foods, Inc. They lacked a reasonable basis for claiming that Marble Care's annual sales exceeded $500,000, as their clients had no access to the company's financial records. Bank records submitted by the defendants demonstrated that Marble Care's revenues did not approach the required threshold, yet the plaintiffs persisted with their claims. By February 2011, counsel conceded their inability to prove the revenue threshold or individual coverage. Following further discovery and a second summary judgment motion from the defendants, the plaintiffs should have conceded their position or voluntarily dismissed the case to avoid incurring fees. In contrast, in similar past cases, plaintiffs had wisely opted not to continue pursuing untenable claims, thus avoiding sanctions. Given the circumstances, an award of reasonable attorney’s fees as sanctions against the plaintiffs' counsel is deemed appropriate, supported by precedents such as Murray v. Playmaker Services LLC.
Defendants seek sanctions against Plaintiffs’ attorneys (Mr. Zidell, Mr. Kelly), the law firm (J.H. Zidell, P.A.), and the two Plaintiffs. While authority exists to sanction individual Plaintiffs, discretion allows the Court to refrain from doing so. In Murray v. Playmaker Services, LLC, the court sanctioned plaintiffs' counsel but not the plaintiff, noting that the plaintiff lacked the legal acumen to assess the suit's merit. Similarly, in Dent, the court awarded fees against counsel but not the plaintiff, emphasizing that plaintiffs cannot be held accountable for legal conclusions. As such, the Court recommends against imposing sanctions on the Plaintiffs.
Attorney Daniel Feld, who did not sign significant filings and is a junior associate, is also recommended to be exempt from sanctions as the Defendants did not demonstrate any bad faith on his part. Sanctions are thus recommended only against Mr. Zidell, Mr. Kelly, and their law firm.
Regarding the timeline for calculating fees, Defendants request fees from the case's inception to August 10, 2011, with further supplements seeking fees through mid-February 2012. Although it could be argued that Plaintiffs’ counsel is liable for fees from the beginning due to the questionable merits of the suit, the Court allowed additional discovery on jurisdictional issues after Defendants’ motions to dismiss. This indicates that while counsel should have been cautious regarding jurisdiction, the Court's decision to permit further discovery complicates the assessment of when bad faith litigation commenced.
Plaintiffs' counsel cannot be sanctioned for initially proceeding with the case based on Judge Graham's order. However, after the order allowed for additional discovery and subsequent discovery was provided, Defendants filed a summary judgment motion on January 18, 2011, referencing bank records from their motion to dismiss. At this stage, it could be argued that Plaintiffs' counsel should have recognized the lack of a viable claim due to unresolved FLSA jurisdictional barriers. Plaintiffs contended that further discovery might provide necessary information and persuaded Magistrate Judge Torres to order additional documents from Defendants, specifically bank statements by February 11, 2011. Following this, Plaintiffs submitted their opposition to the summary judgment on February 18, 2011. By February 11, 2011, it should have been clear to Plaintiffs' counsel that they could not establish FLSA jurisdiction, indicating that the suit was meritless. A historical analogy was drawn to Demosthenes, suggesting that Plaintiffs’ counsel should have conceded their position at that time.
Additionally, the document introduces the lodestar calculation as a method for determining reasonable attorney's fees, which involves multiplying a reasonable hourly rate by the hours expended. This method is widely accepted in federal courts and reflects prevailing market rates, ensuring that excess, redundant, or unnecessary hours are not billed. Plaintiffs attempted to reserve the right to contest the fees but failed to submit any actual opposition or necessary documentation as required by Local Rule 7.3, which mandates an affidavit detailing hourly rates or fee arrangements when opposing rates.
The local rule mandates that the opposing party must specify objections to each time entry or nontaxable expense with reasonable particularity, which the Plaintiffs failed to do. Additionally, the Plaintiffs did not file a motion to determine entitlement before addressing the amount of fees, leading to a waiver of their right to contest the hourly rate or the amount of fees in the initial motion. Despite this waiver, the Court is obligated to assess a reasonable fee and is not required to accept the defense counsel's requested hourly fees uncritically.
For the first two supplements, Plaintiffs adhered to the local rule by submitting a verified response detailing the financial relationship between the party and attorney, with Mr. Zidell stating he has a contingent fee arrangement and an hourly rate of $325, which has been recognized by several magistrate judges in the district. Mr. Zidell also contested the hourly rates of defense attorneys Chris Kleppin and Kristopher Zinchiak, proposing a blended rate of $300 per hour based on prior cases involving the same attorneys.
The Court determined that it would apply a $300 hourly fee for Mr. Kleppin, as supported by recent awards in the district, but found that a $200 hourly rate was more appropriate for Mr. Zinchiak due to his limited experience since graduating law school in 2009.
Fees incurred after February 11, 2011, will be included in the sanctions award. The Court observed that the motions for fees and the reply were largely similar to those submitted by the same defense firm in other Fair Labor Standards Act (FLSA) cases, with significant portions of the arguments being repetitive or verbatim from previous submissions, indicating a lack of originality in the legal arguments presented.
The Court will reduce Mr. Zinchiak's billed hours by 5 for the fees motion and memoranda, and will further deduct $3,000 due to the Defendants' unnecessarily lengthy submissions. Mr. Zinchiak's adjusted hours total 43.8 at a rate of $200 per hour, while Mr. Kleppin worked 3.4 hours at $300 per hour. After these adjustments, the recommended fee award against Mr. Zidell, Mr. Kelly, and the Zidell law firm, jointly and severally, totals $6,780.22. The Court notes a significant shift in attorney responsibilities post-Report; Mr. Kleppin's involvement increased from 5.6% of the initial motion to over 96% in subsequent work, raising concerns about the efficiency of using a higher-billing attorney for tasks already performed by a less expensive associate. The Court emphasizes that while Defendants can choose their representation, they may only seek reimbursement for reasonable costs. The Court mandates using Mr. Zinchiak's lower rate for reasonable time entries in the supplements. The first supplement's work is deemed to have reasonably required only 4.9 hours.
The Undersigned recommends that the District Court award Plaintiffs an additional $980.00 for 4.9 hours of fees at $200.00 per hour for the first supplement. For the second supplement, the proposed fees should be reduced; specifically, the 3.3 hours for drafting a reply to objections is not recoverable since no rule allowed such a filing at that time. Defendants' request for 19 hours, as claimed by Mr. Kleppin for work on July 14, 18, and 19, 2011, is deemed excessive and vague. The Court questions the justification for over 8 hours on July 14 for merely reviewing objections and the 8.8 hours on July 19 for reviewing a response. Additionally, a 2-hour entry on July 18 raises concerns as it seems to relate to the same document review. The Court finds that regardless of whether Mr. Kleppin was reviewing his own response or the Plaintiffs’, the time claimed is unjustified. The recommendation is to reduce the 19 hours to 2 hours, resulting in a total of $580.00 for the second supplement. The request for third supplemental fees is denied in its entirety due to procedural deficiencies, lack of verification, and insufficient detail. The summary of the fees awarded will total $6,780 for fees related to the first motion.
Defendants are awarded a total of $8,340.00 in fees, comprising $980.00 from the first supplement and $580.00 from the second supplement, with no fees granted from a third supplement. Under 28 U.S.C. § 636(b)(1) and Local Magistrate Rule 4(b), parties have seven days to file written objections after receiving this Report and Recommendation, with a five-day window for responses and three days for replies. Failure to file objections on time precludes a de novo review by the District Court and restricts appeal on factual findings. The referral order addresses an initial motion and two supplements; however, Defendants also seek a third supplement through a reply memorandum, which Judge Graham has included in an additional referral. The text references various legal precedents regarding fees and procedural rules, noting that the mere use of goods that traveled in interstate commerce does not alone establish FLSA coverage. It also mentions the attorneys involved in the case and clarifies that the local rules did not allow for a reply to responses opposing objections at that time.
Local Magistrate Rule 4 was amended on December 1, 2011, to allow the filing of replies in support of objections. The appellate court's fee award was directed against individual plaintiffs, their attorney, and the Christie Institute, a tax-exempt law firm that funded the litigation. The Eleventh Circuit noted that fees could be awarded against non-attorney plaintiffs under Section 1927 for "unreasonably and vexatiously multiplied" proceedings, although the statute primarily addresses sanctions for attorneys and admitted persons. The court's language did not clarify the applicability of the statute to law firms, as highlighted by another appellate decision that noted the Eleventh Circuit provided no rationale for including law firms in its considerations. The defendants did not contest this issue in their motions, assuming Section 1927 applied to the law firm without further discussion.
The plaintiffs argued that the defendants had a continuing obligation to provide their 2010 tax returns, which were not due until April 15, 2011, after Judge Graham's March 15, 2011 summary judgment order. However, the plaintiffs acknowledged that the defendants had not filed their tax returns by that time, undermining their complaint about non-disclosure. They contended that the defendants "should have filed and immediately provided" the tax returns, yet provided no legal basis for this expectation regarding tax-planning practices. Furthermore, the plaintiffs' argument overlooked that bank records had been provided. Mediation communications are confidential under Florida law, with violations potentially leading to sanctions, including costs and attorney's fees.
Section 44.406 outlines the remedies available for a mediation participant who knowingly and willfully discloses mediation communications in violation of Section 44.405, stipulating that such a participant is subject to remedies upon application by any party to a competent court, including compensatory damages and attorney's fees. United States Magistrate Judge Ann Vitunac provided an explanation relevant to the case, indicating that even if the claim was legally frivolous, the court would not sanction the Plaintiff for ignorance of the Fair Labor Standards Act (FLSA) jurisdictional requirements. The court acknowledged that young attorneys often rely on their supervising attorneys for guidance, suggesting that Mr. Feld's involvement was likely at most negligent, as he did not sign the filings in question and there was no evidence he knowingly pursued frivolous claims. The commentary on Rule Regulating the Florida Bar 4-5.2 indicates that a subordinate lawyer's responsibility is not absolved by following a supervisor's direction unless they are aware of the frivolous nature of the documents filed. The court emphasized that while the plaintiffs and their counsel were zealous, they could not change the established facts. Regarding attorney fees, Mr. Zidell contended that the rates for Mr. Kleppin and Mr. Zinchiak should be lower than requested, but he acknowledged his own higher billing rate. The court noted that the fee requested by defendants was significantly reduced in its recommendation and emphasized the need for restraint in imposing sanctions. Local rules on attorney fees require verification, and the court decided to shorten deadlines for further submissions based on prior extensive briefings.
