While defendants in consumer-related lawsuits may often claim suits are meritless or filed in bad faith, it’s not so often that a court agrees. It is even less frequent for a court to enter sanctions against a consumer’s attorney, but that’s precisely what happened in the Eastern District of Wisconsin this week, where at least one Judge appears to be tired of frivolous actions and sloppy motions practice.
In March, we told you about two cases in the Eastern District of Wisconsin which were dismissed through scathing orders written by Judge Brett H. Ludwig. The cases, filed by Paul Strouse and Thomas Napierala, are Herron v. Credit One Bank, et al., case #20-cv-0844 (E.D. WI) and Butler vs. 1st Franklin Financial Corporation, et al., Case #20-cv-0842 (E.D. WI). In each case, the consumer filed suit against Enhanced Recovery Company, LLC (ERC) and other defendants alleging all defendants failed to correct and report accurate credit information.
In light of the “cookie-cutter” nature of the complaints, on his way to dismissing the actions for the failure to meet the injury in fact requirements of Article III, Judge Ludwig took the time to probe the consumer’s counsel about their pre-trial conduct and whether the cases were filed for a proper purpose. Ultimately, as a result of the unsatisfactory responses to those questions, Judge Ludwig required each attorney to show cause as to why they should not be sanctioned. (Note: by issuing an Order to Show Cause regarding sanctions, the court essentially said, ‘I am going to fine you if you don’t show me a reason why I shouldn’t’).
The Sanctions Orders:
On June 22, 2021, in another set of identical blistering orders, Judge Ludwig made it clear that he was highly displeased with the responses to his inquiries. First, the Judge took issue with the substance of the responses to the orders to show cause. He admonished the consumers’ counsel for incorrectly describing the “case” as having standing when the issue is whether the “plaintiff” has standing. Further, Judge Ludwig noted that the case upon which the consumers’ counsel relied to avoid sanctions “says not a word about standing.” Holding back nothing, he went on to state the consumers’ counsel’s choice in citing that particular case “suggests they have either failed to read [the] decision or still do not understand the basics of Article III standing, despite having had four cases dismissed based on this fundamental jurisdictional doctrine.”
Next, Judge Ludwig specifically cited the numerous examples of sloppy legal work by the consumers’ counsel. He characterized the response to the order to show cause as “plagued with errors.” He provided specific examples, including that the response cited a “‘goof’ faith belief” and “duplicitous” complaints (instead of “duplicative”). Again, making his opinion of Mr. Strouse and Mr. Naperiela’s legal work quite clear, in addition to providing a laundry list of errors in a footnote, Judge Ludwig offered the following critique:
“[The] sloppiness and general disregard for the Local Rules fails to meet even the most basic expectations for federal court practitioners. While anyone can make a mistake in the hectic practice of law, the Court expects greater care than this, particularly in responding to an order to show cause. And, unfortunately, these blunders are simply a continuation of similar mistakes that have plagued this entire series of cases.”
Finally, Judge Ludwig noted that the consumers’ counsel failed to respond to his direct inquiry regarding whether the case was filed for an improper purpose and failed to come forward with any facts that would even suggest a proper purpose; therefore, sanctions were warranted. In deciding the amount of sanctions to award to each defendant, he noted that although he had the power to award all of the defendants all of their attorneys’ fees, he would show Mr. Strouse and Mr. Napierala “mercy” by only requiring them to pay $2,000.00 to each remaining defendant for a total of $6,000.00.
Regarding the $2,000 it will be receiving as a result of the sanction orders, ERC’s Shelly Gensmer stated, “ERC is, of course, pleased to see the court recognize the need for holding attorneys accountable when cases are litigated in bad faith. Any industry win on Article III standing is immensely valuable! We hope all of the defendants found this to be a positive push towards the overall good fight for the industry.”
It is difficult to recall the rebuke of a consumer’s counsel as strong as that doled out by Judge Ludwig in these orders. That said, Mr. Strouse and Mr. Napierala are not alone in the practice of recycling the same complaint over and over. Anyone who has spent any time in the litigation department of an accounts receivable company has seen cases from consumer attorneys which are nothing more than a recycled version of a complaint filed the previous day, week, or month. These types of cookie-cutter-with-few-actual-facts lawsuits can be exceedingly frustrating for both accounts receivable entities and litigators.
It is important to note though, that while extremely satisfying to read, this may be a fact-specific case that may not be so easy to apply to other serial filers. Although referenced, Judge Ludwig’s frustration was not directed at the 'cookie-cutter' nature of the complaint alone. Instead, by reading the Orders dismissing the case (linked in this article) and the Orders for Sanctions (linked above) together, it appears Judge Ludwig’s irritation with the lack of facts presenting Article III standing in the complaint was exacerbated by compounding and repeated errors. These errors include both failures of the consumers’ counsel to present a plausible reason for standing after repeated requests to do so and the failure to follow basic court rules.
While nothing in these orders is likely to cause an immediate seismic shift in the world of defending cookie-cutter complaints, it is good to remember that orders like this exist. Particularly so if (1) a serial filer fails to present sufficient facts after being allowed to amend a complaint or otherwise fails to respond to a court's direct inquiry regarding the actual basis for the complaint; or (2) if you happen to be in the Eastern District of Wisconsin. Kudos to ERC and the other defendants for calling some attention to this extremely frustrating issue and potentially setting up other accounts receivable entities to make similar arguments against serial filers.