Virginia Properties, LLC v. T-Mobile Northeast LLC, 2017 U.S. App. LEXIS 13746

Background

Virginia Properties sued T-Mobile in 2013 for property damage allegedly caused by T-Mobile’s rooftop cellular equipment; T-Mobile offered $350,000 to settle which plaintiff rejected.
During discovery, defendants alleged that plaintiff committed an "elaborate and pervasive fraud," citing late or withheld documents, an allegedly altered engineer report, and overstated damages.
The district court granted sanctions (Apr. 12, 2016) and later entered a final order (Aug. 18, 2016) dismissing the complaint with prejudice, fining Virginia Properties $75,000, and awarding about $607,493 in fees, costs, and expenses.
On appeal the Second Circuit reviewed the record, found no evidence of forgery or fraud, and concluded many disputed disclosure failures appeared attributable to prior counsel rather than the plaintiff.
The court held that the fee award was legally defective under the Supreme Court’s Goodyear decision because sanctions must be causally related to the misconduct; it vacated the dismissal, fine, and fee award and remanded for limited proceedings to determine compensatory fees tied solely to conduct-caused costs.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Did plaintiff commit a fraud on the court by withholding and falsifying documents?	Virginia Properties denied fraud; late disclosures resulted from counsel and third-party record issues.	Defendants argued plaintiff suppressed documents, forged/altered Yen reports, and inflated damages.	No evidence of forgery or fraud; district court was misled by selective submissions; fraud finding vacated.
Were the late disclosures sanctionable and who should bear responsibility?	Plaintiff contended prior counsel (Lamb & Barnosky) caused disclosure delays; some documents were never in plaintiff’s possession.	Defendants said late production prejudiced them and reflected bad faith by plaintiff.	Some discovery abuse occurred, but fault may lie with prior counsel; remand warranted to determine who should compensate for any delay-related costs.
Was the district court’s award of all adversaries’ fees and costs lawful under inherent authority?	Plaintiff argued full fee award was punitive as not causally tied to specific misconduct.	Defendants sought full fees and costs as compensation and punishment for egregious conduct.	Under Goodyear, fee awards must be causally related to the misconduct; the district court’s broad award was legally unsound and must be recalculated on remand.
Was dismissal with prejudice and the $75,000 fine appropriate?	Plaintiff argued sanctions were excessive and unsupported by the record.	Defendants argued sanctions, including dismissal and fine, were warranted by bad faith and misconduct.	Dismissal and fine vacated—record did not support a finding of particularly egregious conduct necessary for such punitive sanctions.

Key Cases Cited

Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178 (2017) (inherent-authority fee awards must compensate only fees caused by bad-faith misconduct)
Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323 (2d Cir. 1999) (abuse-of-discretion standard for sanctions and requirement of factual specificity)
Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982) (demand for high degree of specificity in bad-faith factual findings supporting sanctions)
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990) (standard that district courts abuse discretion if ruling rests on erroneous view of law or clearly erroneous factfinding)
Zervos v. Verizon N.Y., Inc., 252 F.3d 163 (2d Cir. 2001) (sanctions improper where order falls outside range of permissible decisions)
Revson v. Cinque & Cinque, P.C., 221 F.3d 71 (2d Cir. 2000) (district court better situated to develop facts in sanctions determinations)