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Los Angeles Lawyers, Firm Sanctioned
The Recorder
April 06, 2009
A federal magistrate judge in Nevada sanctioned a Los Angeles firm, two of its lawyers and their client last Tuesday for what she called "scorched earth litigation tactics" in a trade secrets case.
Magistrate Judge Valerie Cooke of Nevada District Court imposed roughly $20,000 in sanctions on Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor. She handed down $102,205 in fines to Deborah Klar, an erstwhile attorney at the firm, and another $20,441 to Teri Pham, still with Liner Grode.
Cooke also ordered Klar and Pham to perform a combined 300 hours of pro bono work, a punishment that one ethics expert said was unique.
"The court concludes that the conduct of the Liner firm and its attorneys, Ms. Klar and Ms. Pham, was willfully reckless, intended to harass, done for an improper purpose, and was suffused with bad faith," Cooke wrote in her 54-page ruling. Cooke wrote that she would publish the order (PDF) for maximum deterrence, and, pointing specifically to Klar and Pham, also referred the matter to the Nevada and California state bars.
The magistrate gave the firm and lawyers until Friday to object to the district court and stayed her order in the meantime.
Her ruling was one of at least two last week referred to the California State Bar by judges: Los Angeles-based Irell & Manella was criticized in a Central District ruling Wednesday.
Klar and Pham represented Dennis Montgomery, a self-described inventor and software developer from Nevada who became involved in litigation against a business partner in 2006.
Montgomery's first attorney, Michael Flynn, withdrew from the case following a dispute over legal fees and used a provision in Nevada law to claim a "retaining lien" on Montgomery's files until he was paid. That set off a multistate effort by Klar and Pham to obtain the files, one that eventually ended in their sanctioning in Montgomery v. eTreppid Technologies, 06-0056.
Cooke wrote that she was convinced that Klar and Pham's actions "were part of a litigation strategy designed to remove both the client file and fee dispute from this court's jurisdiction, deny Mr. Flynn the disputed attorney's fees, and force him to expend significant attorney's fees defending his interests in three other forums."
She ordered Klar to perform 200 hours of pro bono work, and Pham to complete 100, within two years.
Jerome Fishkin, a Walnut Creek, Calif., lawyer who specializes in legal ethics, said he had never heard of a judge using pro bono work as a sanction.
One issue "is the anomaly of saying, 'This attorney's been bad, so we're going to punish them by making them do work for people who can't afford it,'" Fishkin said.
He also said he was unsure how the judge will ensure the attorneys complete all 300 hours of their assignment. Cooke's order lays out a schedule for Klar and Pham to first submit a plan for their pro bono work, then report back twice with declarations logging their progress.
Klar, reached on Friday, declined to comment, and Pham did not return a phone message Friday afternoon.
Stuart Liner, Liner Grode's managing partner, said he is "extremely disappointed and surprised" by the order and that the firm plans to object by Friday. He said Klar left the firm roughly five months ago and would not discuss whether her departure was related to the case.
A day after Cooke's order, a Central District judge in California came down hard on Irell & Manella for failing to get a waiver from Broadcom Corp.'s chief financial officer during a stock option backdating investigation.
According to the ruling (PDF), the firm was hired to conduct Broadcom's internal investigation of its stock option granting, and at the same time represented CFO William Ruehle in two shareholder suits on the same topic. "Prior to undertaking these representations of clients with adverse interests, Irell failed to obtain Mr. Ruehle's informed written consent," Judge Cormac Carney wrote, adding that he was also referring Irell to the State Bar for "appropriate discipline." The U.S. attorney's office wants to use some statements Ruehle gave during the internal investigation in its prosecution of him, an effort Carney rebuffed in last week's order in U.S. v. Ruehle, 08-00139.
In response to Carney's ruling, Irell issued a statement saying the firm believes his ruling was in error. "The disclosures the firm made to the audit committee and the company's auditors at Ernst & Young were entirely proper," the firm said.
According to data provided to The Recorder by Russell Weiner, a deputy chief trial counsel with the State Bar, courts were the source of between 4 and 6 percent of the referrals made to the bar between 2004 and 2007. Weiner said the overwhelming majority of complaints his office handles, about 95 percent, concern practices with 10 or fewer lawyers.
