Lucas v. Jos. A. Bank Clothiers, Inc., 3:14-cv-01631

Background

Plaintiff David M. Lucas responded to an online solicitation and volunteered to be the putative class representative in a suit alleging Joseph A. Bank inflated suit prices during BOGO sales.
Lucas initially told counsel he bought three suits; later claimed he bought twelve suits across four purchases and provided a purported bank statement (which was later shown to be fabricated).
Plaintiffs’ counsel (Tycko & Zavareei and Spangenberg) filed suit in July 2014 and litigated for two years; Lucas was deposed in January 2016 and maintained his story under oath.
Navy Federal Credit Union’s official records, produced pursuant to subpoena in May 2016, showed Lucas made no purchases at Joseph A. Bank; counsel then sought to investigate and ultimately moved to substitute the class representative and to dismiss.
Joseph A. Bank moved for sanctions; the court held a sanctions hearing where it found Lucas lied, fabricated a bank record, and testified falsely; the court found Lucas’s counsel negligent but not reckless or in bad faith.
The Court imposed sanctions on Lucas alone: $40,000 to compensate Joseph A. Bank for the litigation costs caused by his fraud; counsel were not sanctioned under 28 U.S.C. § 1927 or the court’s inherent power.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether plaintiffs’ counsel multiplied the proceedings unreasonably or acted in bad faith warranting § 1927 or inherent-power sanctions	Counsel acted reasonably in relying on Lucas and the corroborating document; any lapses were inadvertent and insufficient for sanctions	Counsel should be sanctioned for failing to vet Lucas, for altering the produced bank statement, and for not dismissing sooner	Counsel were negligent and should have vetted Lucas more thoroughly, but did not act recklessly or in bad faith; no sanctions against counsel under § 1927 or inherent power
Whether Lucas fabricated evidence and lied under oath such that sanctions are appropriate under the court’s inherent powers	Lucas maintained his purchases and the authenticity of the bank statement	Joseph A. Bank showed official bank records contradicting Lucas and other indicia of fabrication (tax rate mismatch, inconsistent stories)	Court found by clear and convincing evidence that Lucas acted intentionally and in bad faith (fabricated a bank record and lied under oath); sanctions appropriate
Standard of proof required to impose sanctions on attorneys	(Implicit) Preponderance or lower standard may suffice	Moving party must meet clear and convincing evidence when attorney reputation is at stake	Court adopts clear and convincing evidence standard for sanctions affecting an attorney’s reputation
Appropriate monetary sanction amount and consideration of ability to pay	Lucas argued limited assets and inability to pay large sanction	Joseph A. Bank sought to recover costs and deter misconduct	Court imposed $40,000 on Lucas as proportionate to his ability to pay and the reprehensibility of his conduct

Key Cases Cited

Lahiri v. Universal Music & Video Distribution Corp., 606 F.3d 1216 (9th Cir. 2010) (discussing sanctions standards)
Shepherd v. American Broadcasting Cos., Inc., 62 F.3d 1469 (D.C. Cir. 1995) (clear and convincing standard often applied for sanctions)
Eastwood v. National Enquirer, Inc., 123 F.3d 1249 (9th Cir. 1997) (clear-and-convincing standard protects against grave reputational consequences)
Fink v. Gomez, 239 F.3d 989 (9th Cir. 2001) (discussing bad faith versus recklessness for sanctions)
Blixseth v. Yellowstone Mountain Club, LLC, 796 F.3d 1004 (9th Cir. 2015) (bad faith includes reckless pursuit of frivolous claims)
In re Girardi, 611 F.3d 1027 (9th Cir. 2010) (definition of recklessness in attorney sanction context)
Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (courts’ inherent power to sanction and need to tailor sanctions)
Warren v. Guelker, 29 F.3d 1386 (9th Cir. 1994) (ability to pay may be considered when imposing monetary sanctions)