JUNE 2017 BAD FAITH CASES: COURT DISMISSES SUIT AS SANCTION (Philadelphia Federal)

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This suit was brought by an insurer against its insured’s attorneys and an expert retained by its insured’s attorneys in a Washington State class action against the insurer. The following are excerpts from the court’s strongly worded opinion. The court dismissed the case as a sanction, under its inherent authority.

“A few years ago, two class actions were filed … in Washington state court. Not surprisingly, as in any litigation, a dispute arose about the use of documents in these Washington class actions. Rather than meet and confer with the plaintiffs’ lawyers (or file a motion in Washington court) about this dispute, [the insurer] sued them here in Philadelphia. That, however, was not enough to quench [the insurer]’s thirst for aggression. [It] also sued the plaintiffs’ lawyers’ expert witness and his company.”

“[The insurer] weaves some clever arguments in an attempt to justify its acts of obstruction. However, practicality, legal analysis, and common sense all make clear [the insurer] is attempting to stalemate the Washington class actions by suing the plaintiffs’ lawyers thousands of miles away from where those class actions are currently being litigated. The red herrings in this case are [the insurer]’s alleged ‘claims’ for trade secret misappropriation and unjust enrichment. Even if these ‘claims’ were anything more than red herrings—which they are not—they fail as a matter of law.”

“The defendants filed a motion to dismiss. In the alternative, defendants move to transfer this action to the U.S. District Court for the Western District of Washington. While transfer might be appropriate in this case, there is no need. I will not tolerate the attempted manipulation of our judicial process in this case. The case is dismissed.”

“In this case, while a close call, I cannot conclude that Rule 11 sanctions are proper because I do not find the [insurer]’s claims ‘patently unmeritorious or frivolous.’” “The claims are weak, to be sure, but they do possess a modicum of substance, thereby elevating them slightly above the level of ‘patently unmeritorious or frivolous.’” “Consequently, Rule 11 sanctions cannot be imposed.”

“However, I will impose sanctions, pursuant to my inherent power, for ‘conduct which abuses the judicial process.’” The insurer’s “conduct, in filing this lawsuit, was done in bad faith, vexatiously, and for oppressive reasons.” “This is the exact type of case where a response to ‘abusive litigation practices’ is warranted.”

The court dismissed the complaint “in its entirety, without prejudice. Whether [the insurer] will again be subject to sanctions under my inherent authority (or under Rule 11) will depend upon the renewed strength and plausibility of [the] claims in its amended complaint, should it decide to take this route and file one.”

Date of Decision: June 13, 2017

GEICO v. Nealey, No. 17-807, 2017 U.S. Dist. LEXIS 91219 (E.D. Pa. June 13, 2017) (Stengel, J.)

 

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