Gibson et al v. Credit Suisse Securities USA, LLC et al

Filing 473

MEMORANDUM DECISION AND ORDER RE MOTION OF BENJAMIN SCHWARTZMAN AND WADE WOODARD FOR RELIEF FROM SANCTIONS ORDER OF 3/29/2013 352 granting 355 Motion for Relief From Sanctions. The Court rules that Messrs. Schwartzman andWoodard are not subject to the sanctions otherwise ordered by the Courts 3/19/2013 Memorandum Decision and Order. Signed by Judge Ronald E. Bush. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm)

UNITED STATES DISTRICT COURT
DISTRICT OF IDAHO
L.J. GIBSON, BEAU BLIXSETH, AMY KOENIG,
VERN JENNINGS, MARK MUSHKIN,
MONIQUE LEFLEUR, and GRIFFEN
DEVELOPMENT, LLC, JUDY LAND, and
CHARLES DOMINGUEZ, each individually, and
on behalf of PROPOSED Plaintiff CLASS
Members of Tamarack Resort, Yellowstone Club,
Lake Las Vegas, and Ginn sur Mer,
Plaintiffs,

Case No.: CV 10-1-EJL-REB
MEMORANDUM DECISION AND
ORDER RE: MOTION OF
BENJAMIN SCHWARTZMAN AND
WADE WOODARD FOR RELIEF
FROM SANCTIONS ORDER OF
MARCH 29, 2013 (DKT #352)
(Docket No. 355)

vs.
CREDIT SUISSE AG, a Swiss corporation;
CREDIT SUISSE SECURITIES (USA), LLC, a
Delaware limited liability company, CREDIT
SUISSE FIRST BOSTON, a Delaware limited
liability corporation; CREDIT SUISSE CAYMAN
ISLAND BRANCH, an entity of unknown type;
CUSHMAN & WAKEFIELD, INC., a Delaware
corporation and DOES 1 through 100 inclusive,
Defendants.

Now pending before the Court is the “Motion of Benjamin Schwartzman and Wade
Woodard for Relief from Sanctions Order of March 29, 2013 (DKT #352)” (“Motion for Relief”)
(Docket No. 355). Having carefully considered the record and otherwise being fully advised, the
undersigned enters the following Memorandum Decision and Order:
I. BACKGROUND
1.

On June 4, 2012, Defendant Cushman & Wakefield filed a motion for sanctions,

arguing that Plaintiffs should be sanctioned due to their (and/or their counsel’s) “misconduct in
failing to disclose for more than one year the existence of a signed affidavit from Michael Miller,
MEMORANDUM DECISION AND ORDER - 1

while at the same time submitting to the Court and relying on a different, unsigned declaration.”
See C & W’s Mot. for Sanctions, p. 2 (Docket No. 246).
2.

In support of its June 15, 2012 motion for reconsideration (seeking

reconsideration of Judge Edward J. Lodge’s March 30, 2012 Order (Docket No. 210)),
Defendant Credit Suisse highlighted Plaintiffs’ counsel’s reliance upon Mr. Miller’s unsigned
March 19, 2011 declaration up to that point in the litigation when, in fact, they were in
possession of a later-in-time, signed affidavit from Mr. Miller that was substantively different
from Mr. Miller’s earlier declaration. See Mem. in Supp. of Credit Suisse’s Mot. for Recons.,
pp. 1-2 (Docket No. 253, Att. 1). In turn, Credit Suisse moved the Court to (1) reconsider its
denial of Credit Suisse’s renewed motion to dismiss Plaintiffs’ negligence claim in light of the
“Miller revelations,” and (2) order Plaintiffs to show cause as to why they should not be
sanctioned “for misleading the Court in violation of their duty of candor.” See id. at p. 3.
3.

Plaintiffs opposed Cushman & Wakefield’s motion for sanctions and Credit

Suisse’s motion for order to show cause. See Pls.’ Opp. to C & W’s Mot. for Sanctions; Pls.’
Opp. to Credit Suisse’s Mot. for Order to Show Cause (Docket Nos. 265 & 271).
4.

On December 5, 2012, the undersigned heard oral argument on (1) Cushman &

Wakefield’s June 4, 2012 motion for sanctions, and (2) Credit Suisse’s June 15, 2012 motion for
order to show cause. See 12/5/12 Minute Entry (Docket No. 309).
5.

On December 6, 2012, Plaintiffs filed a motion for leave to file expedited five-

page brief regarding the order to show cause hearing, arguing that “[t]he issue before the Court
has serious consequences, particularly to the integrity and reputation of Plaintiffs’ attorneys as
well as the other considerations articulated in court,” that “[n]o pre-hearing briefs were requested

MEMORANDUM DECISION AND ORDER - 2

by either the Court or the parties and the issues are now focused for a meaningful brief,” and that
“[t]here were issues propounded at the hearing which deserve a meaningful and thoughtful input
from counsel.” See Pls.’ Mot. for Leave, pp. 1-2 (Docket No. 308).
6.

On December 6, 2012, the undersigned granted Plaintiffs’ motion for leave,

reasoning:
The Court struggles with any assessment of the pending motions for sanctions that
does not immediately raise significant issues for Plaintiffs requiring a thorough and
careful response. However, it is possible that the seriousness of the issue raised by
the motions for sanctions, and the sanctions requested by Defendants, were not
apprehended by Plaintiffs’ counsel to the appropriate degree. Given the implications
of the pending motions for all of Plaintiffs’ counsel, and for the claims made in the
lawsuit, the Court will grant the Motion.
See 12/6/12 MDO, p. 2 (Docket No. 311).
7.

On December 10, 2012, Plaintiffs filed their post-hearing brief, arguing that

sanctions should not be imposed. See Pls.’ Post-Hearing Brief (Docket No. 315).
8.

On December 13, 2012, Defendants responded to Plaintiffs’ post-hearing brief,

arguing that sanctions should be imposed against Plaintiffs. See Credit Suisse & C & W Resps.
(Docket Nos. 321 & 322).
9.

On March 29, 2013, the undersigned issued a Memorandum Decision and Order,

granting Cushman & Wakefield’s motion for sanctions and Credit Suisse’s motion for order to
show cause. See 3/29/13 MDO (Docket No. 352). Therein, the undersigned sanctioned
Plaintiffs and/or their counsel as follows: (1) Plaintiffs’ counsel may not use the testimonial
evidence of Mr. Miller in this case for any purpose, other than as obtained in deposition or
courtroom testimony; (2) Plaintiffs’ counsel are individually sanctioned in the amount of
$6,000.00; and (3) Plaintiffs’ counsel, jointly and severally, shall pay a sum to each Defendant –

MEMORANDUM DECISION AND ORDER - 3

Credit Suisse and Cushman & Wakefield – to be determined upon consideration of appropriate
evidence, to recompense said Defendants for the attorneys’ fees and costs necessitated by the
motions filed seeking sanctions as a result of the failure to file the sworn affidavit of Mr. Miller.
See id. at pp. 23-28.
10.

Relevant here, regarding the above-referenced monetary sanctions, the

undersigned’s March 29, 2013 Memorandum Decision and Order specifically identified
attorneys Robert Huntley, Christopher Conant, James Sabalos, and Michael Flynn as being
“absolutely subject” to the Memorandum Decision and Order. With respect to Plaintiffs’ other
attorneys, the Court stated:
To the extent any one of Plaintiffs’ remaining counsel believes that he should not be
subject to this Memorandum Decision and Order, he is to file a motion seeking relief
from the same on or before April 12, 2013, detailing the good cause for said relief.
See id. at p. 24.
11.

On April 7, 2013, Benjamin Schwartzman and Wade Woodard filed the at-issue

Motion for Relief, arguing that: “(1) Messrs. Schwartzman and Woodard were neither involved
in the instant case, nor counsel for Plaintiffs (or the putative Plaintiff class), at the time many of
the primary events germane to the Court’s sanctions analysis occurred; [and] (2) subsequent to
their ingress in the instant litigation, Messrs. Schwartzman and Woodard at no time participated
in, were informed about, or were responsible for handling, any of the actions adjudged incorrect
by the Court’s relevant order.” See Mot. for Relief, p. 2 (Docket No. 355).1

1

Although their exact purposes are unclear, Messrs. Sabalos and Huntley filed
declarations “in response” to Messrs. Schwartzman’s and Woodard’s April 7, 2013 filing. See
Sabalos & Huntley Decls. (Docket Nos. 383, 385 & 390). Later that day, Mr. Schwartzman filed
a declaration “in reply to response declaration of Mr. Huntley.” See Schwartzman Decl. (Docket
No. 386). On April 23, 2013, Mr. Schwartzman filed a Motion to Withdraw from this action.
See Mot. to Withdraw (Docket No. 388).
MEMORANDUM DECISION AND ORDER - 4

II. DISCUSSION
As described above, the Court’s prior decision permitted counsel other than Messrs.
Huntley, Conant, Sabalos, and Flynn, to seek relief from the provisions of the decision as it
related to them individually. Messrs. Schwartzman and Woodard have done so, as also
described above, and the Court considers and decides their request for relief in this
Memorandum Decision and Order.
Previously, the Court dealt with a record that was not as fully developed as to the
connection of the individual counsel (other than Messrs. Huntley, Conant, Sabalos, and Flynn) to
the conduct that had been called into question. To be sure, there was full opportunity for Messrs.
Schwartzman and Woodard to enlarge the record prior to the issuance of that decision, and the
more prudent course was for them to have done so. Nonetheless, the Court will consider the
additional facts and arguments that they have asked the Court to consider.
Their argument rests upon two prongs:
First, that they came into the lawsuit after (a) Plaintiffs’ counsel had interviewed and
obtained the unsworn statements from Mr. Miller, and (b) Plaintiffs sought leave from the Court
to depose Miller. Nor had they ever met or spoken with Mr. Miller or his attorney, ever
communicated with Mr. Miller or his attorney, or had any particular awareness of Mr. Miller’s
potential testimony, or of the fact that Mr. Miller’s unsigned declaration had been submitted to
the Court, as that had occurred prior to their coming into the lawsuit.
Second, Mr. Schwartzman and Mr. Woodard contend their work in the case as being a
divided labor that did not require that they be familiar with the details of Mr. Miller’s connection
to the case. Rather, they describe their work as primarily focused on class certification issues.

MEMORANDUM DECISION AND ORDER - 5

They were furnished with drafts of the pleadings which relied upon Mr. Miller’s unsigned
declaration (e.g., Docket Nos. 148, 152, and 153); however, they contend that their particular
responsibility gave them no reason to review or scrutinize the references to Mr. Miller’s
testimony, as their role in drafting the amended pleadings and related filings was directed “solely
to the assurance of their conformity with, and reflection of, an appropriate class certification
strategy and approach.” Therefore, they claim to have had no need to evaluate the source of the
statements provided by Mr. Miller, were unaware that multiple versions of his statements
existed, and had no direct involvement in the drafting of the portions of the filings that
referenced his testimony, or in the argument drawing upon the same.
The Court has also considered the filings made by Plaintiffs’ other counsel which are
styled, in part, as a response to the filings made by Messrs. Schwartzman and Woodard. See,
e.g., Sabalos & Huntley Decls. (Docket Nos. 383, 385 & 390). There is no pertinent mention in
Mr. Sabalos’ declaration regarding the involvement of Messrs. Schwartzman and/or Woodard.
Mr. Huntley’s declaration repeats his belief that there is no basis whatsoever for any sanction
against any of Plaintiffs’ counsel, and he goes on to characterize the eight individual Plaintiffs’
counsel as a collective “‘[p]artnership,’ jointly and severally liable for the acts or omissions of
each other.” See Huntley Decl., p. 1 (Docket No. 385). In relevant part, as to Messrs.
Schwartzman and Woodard, Mr. Huntley says:
•

On May 4, 2011, he sent an email attaching the “first signed Declaration
by Miller to ALL Class Counsel,” including Messrs. Schwartzman and
Woodard, which said among other things: “I had a nice chat with Miller
a few moments ago and then he put his affidavit on the fax machine and
I attach a copy . . . . His amendments are relatively minor and he assured
me he will have “a lot more to say” once he is under a subpoena . . . . I
await the final approved documents from John and Mike and further
orders.”

MEMORANDUM DECISION AND ORDER - 6

•

“At no time from May 4, 2011 did any of the eight (8) class counsel
suggest that the first signed Declaration or the later signed affidavit should
be or needed to be filed or served.”

•

“In September 2011 Ben Schwartzman and Robert Huntley became ‘CoLead Counsel,’ and remain such to this day.”

•

During the argument on the motions to dismiss the Third Amended
Complaint, “both Co-lead counsel Schwartzman and Huntley were present
and presenting segments of the argument.”

•

“Every major pleading in this case was signed by all class counsel.
Except in rare circumstances when time would not permit all pleadings
were circulated to Class Counsel for editing, input, or objections.”

Id.
Mr. Huntley’s declaration prompted the filing of a second declaration from Mr.
Schwartzman. See Schwartzman Decl. (Docket No. 386.) There, Mr. Schwartzman says he has
made repeated searches of his email and has never found a copy of the particular May 4, 2011
email to which Mr. Huntley refers; says he did receive a May 9, 2011 email from Mr. Huntley
appending a PDF copy of a Miller affidavit, but with a message saying only “See attached
affidavit of Miller”; and avers again that he “had no responsibility for, or knowledge of, Mr.
Miller’s testimony in this matter” and that the “entirety of my case activity was directed at
wholly disparate topics.” See id. at pp. 2-3.
Although Mr. Huntley’s declaration disclaims any intention to “shift responsibility from
Declarant to others, or to in any way apportion responsibility,” it is inescapably designed to
place Mr. Schwartzman and the Flood brothers within the circle, so to speak, of those who had
knowledge and who could have chosen to speak up or act differently regarding Mr. Miller’s
unsigned declaration when compared to his signed affidavit (which was never filed with the
Court), but did not do so.
MEMORANDUM DECISION AND ORDER - 7

Nonetheless, on these particular facts, the Court is persuaded that Messrs. Schwartzman
and Woodard are properly excluded from the sanctions otherwise imposed by the Court’s March
29, 2013 Memorandum Decision and Order. In concluding in that Order that such sanctions
were properly justified in this case, the Court focused upon three elements: (1) the fact of Mr.
Miller’s unsigned, unsworn March 19, 2011 declaration, presented and thereby represented to
the Court as tantamount to testimony under oath, prevented from being made under oath only
because of the declarant’s fear of retribution or retaliation from Defendants; (2) the receipt by
Plaintiffs’ counsel of a statement signed under oath by Mr. Miller at a later date (Mr. Miller’s
May 4, 2011 affidavit), but which was not filed with the Court despite the fact that it differed
from the March 19, 2011 unsigned declaration which had been filed; and (3) the subsequent
repeated reference to and heavy reliance upon the testimony contained in Mr. Miller’s March 19,
2011 unsigned declaration in the Third Amended Complaint, and in Plaintiffs’ attempt to renew
a claim for breach of fiduciary duty, in both written filings and in oral argument, despite the fact
that it differed from the signed May 4, 2011 affidavit and despite the fact that Plaintiffs’ counsel
was in possession of the May 4, 2011 affidavit. In turn, the Court concluded that the conduct of
Plaintiffs’ counsel in connection with those three subjects fell short of those lawyers’
responsibilities to the Court and to their profession, such that sanctions should be imposed by
way of redress for their conduct, pursuant to authority granted to this Court under 28 U.S.C. §
1297, Idaho Rule of Professional Conduct 3.3,2 and under the inherent powers of
the Court.

2

As made applicable to attorneys practicing in the U.S. District Court for the District of
Idaho, pursuant to District of Idaho Local Civil Rule 83.5.
MEMORANDUM DECISION AND ORDER - 8

Such a decision involved an assessment of each attorney’s culpability for the improper
conduct; however, some of the record applicable to that assessment was of a collective nature as
to certain of Plaintiffs’ counsel, which prompted the Court to allow them an opportunity to argue
to the Court that they should not be subject to the sanctions. Importantly, the Court did not
premise its prior sanctions order upon FRCP 11, and expressly stated that the Court was making
no findings on whether or not the complained of conduct ran afoul of that Rule. See 3/29/13
MDO, p. 23 (Docket No. 352). Accordingly, whether or not Messrs. Schwartzman or Woodard
signed the filing which placed Mr. Miller’s unsigned March 19, 2011 declaration into the record
is not at issue here.3 Rather, the central issue is their individual connection, if any, to the
decision not to place Mr. Miller’s subsequently sworn and signed affidavit in the record, while
still relying upon and emphasizing Mr. Miller’s previous, unsigned declaration in the ongoing
motion practice. In that regard, the Court examines the individual conduct of Messrs.
Schwartzman and Woodard to determine whether they have abused duties owed to the Court in a
manner that constituted or was tantamount to bad faith, and by doing so multiplied the
proceedings unreasonably and vexatiously. After such an examination, the Court concludes that
neither Mr. Schwartzman nor Mr. Woodard was sufficiently linked to the filing of the unsigned,
unsworn Miller Declaration, or the use of the same in subsequent pleadings and argument to be

3

Mr. Huntley is mistaken in the representation contained in his declaration that Messrs.
Schwartzman and Woodard signed the document that put the March 19, 2011 unsigned Miller
affidavit into the record as neither Mr. Schwartzman nor Mr. Woodard had appeared as counsel
at that time. In addition, Mr. Huntley’s declaration has the qualifier that “every major pleading”
was signed by all class counsel, but he gives no definition to his use of that term. He goes on to
say that “[e]xcept in rare circumstances when time would not permit, all pleadings were
circulated to all Class Counsel for editing, input, or objections,” but again gives no context to
that statement sufficient for the Court to discern how exactly that statement might apply to any
of the other counsel, and as to what particular documents.
MEMORANDUM DECISION AND ORDER - 9

able to say that either or both of them abused duties owed to the Court in such a way as to run
afoul of 28 U.S.C. § 1927. They simply were not sufficiently in the mix as to such matters as to
have their actions, or inactions, tainted by the particular collective details.
What remains then, is to examine that same individual conduct of both Messrs.
Schwartzman and Woodard to determine whether such conduct was proscribed by Idaho Rule of
Professional Conduct 3.3. As described at length in this Court’s prior ruling, the substantive
essence of the missteps taken by Plaintiffs’ counsel is found in the following facts:
•

Mr. Miller was described as a critical, “whistle-blower” witness;

•

Plaintiffs placed unsworn testimonial evidence of Mr. Miller to the Court
in a form that counsel vouched for as if it were tantamount to sworn
testimony, and that such evidence would have been presented as having
been made under oath but for Mr. Miller’s fear of retaliation from the
Defendants;

•

Plaintiffs argued to the Court that Mr. Miller’s unsworn testimony was
vitally important to the Court’s consideration of critical issues involving
remodeled pleadings and dispositive motions;

•

Nearly all the while of these events, Plaintiffs were in possession of an
actual sworn testimonial statement of Mr. Miller that was neither
disclosed to nor filed with the Court; and

•

The sworn statement of Mr. Miller, which was not filed with the Court,
was not identical to the unsworn declaration of Mr. Miller which was filed
with the Court.

IRCP 3.3(a)(1) requires that a lawyer shall not knowingly “make a false statement of fact
or law to a tribunal or fail to correct a false statement of material fact or law previously made to
the tribunal by the lawyer.” For the reasons described in the Court’s prior ruling, the decision to
file, then rely upon and argue from Mr. Miller’s declaration, while not filing Mr. Miller’s signed
affidavit, violates the prohibition against making a false statement of fact or law to a tribunal, or
failing to correct a false statement of material fact or law previously made.
MEMORANDUM DECISION AND ORDER - 10

Plaintiffs’ other counsel strenuously contend that there was no “false statement of
material fact” in Mr. Miller’s earlier, March 2011 declaration, as they argue that the later, May
2011 affidavit was substantively the same. Although Messrs. Schwartzman and Woodard do not
emphasize such an argument in their briefing, the argument is not well-made regardless of who
is making it. There are material differences between the unsigned declaration, which was filed,
and the signed affidavit, which was not. The differences are material, as evidenced by the fact
that portions of the unsigned declaration that were not contained in the later, signed, affidavit
became particular points of emphasis made by Plaintiffs’ counsel in hearings upon Plaintiffs’
Motion to Amend and the Defendants’ Motions to Dismiss. Such points of emphasis were still
being presented and argued to the Court as if they were statements in the March affidavit that
would have been made under oath by Mr. Miller but for his worry that he would be subjected to
retaliation from the Defendants.
Without belaboring here the particular details of the same, it is inescapable that in the
context described here, certain information contained in the unsworn March 2011 declaration
that was not contained in the sworn May 2011 affidavit was false at the very least in its
packaging – it was information that was presented to the Court as if it was sworn testimony and
yet at a later date, when the witness did sign a sworn affidavit, the sworn affidavit was not the
same document as the earlier unsworn declaration. That distinction was not made known to the
Court or opposing counsel. The fact of the signed affidavit was not made known to the Court or
opposing counsel. The signed affidavit was not filed with the Court. Such a failure, as discussed
and ruled upon in the Court’s prior decision, amounted to a lack of candor to the tribunal at a
minimum, and an affirmative misrepresentation at worst.

MEMORANDUM DECISION AND ORDER - 11

The Court has considered the arguments raised by Messrs. Schwartzman and Woodard
against the standards required of them under IRCP 3.3, and concludes for the same reasons
described above, that their conduct does not rise to the level of sanctionable conduct under that
Rule. That ruling is, however, limited to the particular facts of this case as they relate to Mr.
Schwartzman and Mr. Woodard, and this ruling should not suggest in any way a court-made
relaxation of the duties imposed by IRCP 3.3.
III. ORDER
For the reasons described in this decision, the Court rules that Messrs. Schwartzman and
Woodard are not subject to the sanctions otherwise ordered by the Court’s March 19, 2013
Memorandum Decision and Order. The “Motion of Benjamin Schwartzman and Wade Woodard
for Relief from Sanctions Order of March 29, 2013 (DKT #352)” (Docket No. 355) is
GRANTED.
DATED: March 20, 2014

Honorable Ronald E. Bush
U. S. Magistrate Judge

MEMORANDUM DECISION AND ORDER - 12