Liu v. Kell

Filing 69

ORDER granting in part and denying in part Defendant's #44 Motion to dismiss and for discovery sanctions. Signed by U.S. District Judge John C Coughenour. (PM)

THE HONORABLE JOHN C. COUGHENOUR

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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LI LIU,

CASE NO. C17-0640-JCC

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Plaintiff,

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ORDER

v.
KEEGAN KELL,

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Defendant.

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This matter comes before the Court on Defendant’s motion to dismiss and for discovery

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sanctions (Dkt. No. 44). Having thoroughly considered the parties’ briefing and the relevant

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record, the Court finds oral argument unnecessary and hereby GRANTS in part and DENIES in

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part the motion for the reasons explained herein.

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I.

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BACKGROUND
Plaintiff is a Chinese citizen and permanent U.S. resident. (Dkt. No. 35 at 1.) Defendant

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is a U.S. citizen. (Dkt. No. 35 at 1.) The two married in China in October 2013. (Dkt. No. 2 at 4.)

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Defendant then served as Plaintiff’s immigration sponsor, signing a Form I-864EZ Affidavit of

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Support (“I-864 Affidavit”) in April 2014. (Id.); (see Dkt. No. 27-7 at 6.) Under the terms of the

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I-864 Affidavit, Defendant is obligated to provide sufficient financial support to Plaintiff to

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ensure she receives income equal to at least “125 percent of the Federal poverty line.” 8 U.S.C.

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§ 1183a(a)(1)(A). This obligation began when Plaintiff became a lawful U.S. permanent resident
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and continues until Plaintiff: (1) becomes a U.S. citizen, (2) is credited with 40 quarters of

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coverage under the Social Security Act, (3) leaves the U.S. and terminates permanent resident

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status, (4) is the subject of a new affidavit of support, or (5) dies. 8 U.S.C. § 1183a(a)(2)–(3); 8

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C.F.R. § 213a.2(e)(2)(i). Plaintiff obtained permanent resident status in the U.S. in May 2014.

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(Dkt. No. 2 at 5.)

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The parties separated in August 2014. (Dkt. No. 23-1 at 3.) Defendant petitioned for

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dissolution of the marriage in September 2014, alleging Plaintiff “made living with her so

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unpleasant and untenable that [Defendant] left her and filed for divorce.” (Dkt. No. 25 at 4); (see

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Dkt. No. 23-1 at 2). The divorce was finalized in November 2015, without an award of ongoing

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spousal maintenance. (Dkt. No. 23-8 at 2.) The divorce had no impact on Defendant’s I-864

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support obligation. (Dkt. No. 35 at 2.) At some point following the marital dissolution,

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Defendant stopped supporting Plaintiff. (Dkt. No. 2 at 5.) Plaintiff remarried in September 2017.

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(Dkt. No. 45-12 at 1.) Plaintiff did not notify Defendant of this change in marital status, which

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would have affected the amount of Defendant’s I-864 support obligation due to Plaintiff’s

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community property interest in her husband’s earnings. See Erler v. Erler, 824 F.3d 1173, 1178

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(9th Cir. 2016) (support obligation reduced by other sources of income). Defendant claims he

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only learned of the marriage through the efforts of a private investigator. (Dkt. No. 53 at 2.)

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Plaintiff confirmed the results of Defendant’s investigation during a November 27, 2017

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deposition. (Dkt. Nos. 45-17, 53 at 2.)

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Plaintiff brought an action to enforce the I-864 support obligation on April 24, 2017 and

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moved to proceed in forma pauperis. (Dkt. Nos. 1, 2.) The Court granted Plaintiff’s motion to

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proceed in forma pauperis shortly thereafter. (Dkt. No. 6). Defendant now moves to dismiss and

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for discovery sanctions, alleging that Plaintiff misstated her finances on her application to

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proceed in forma pauperis and that she improperly withheld evidence regarding those finances

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during discovery. (See generally Dkt. No. 44.) Defendant further alleges Plaintiff acted in bad

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faith. (Id. at 9.) Plaintiff counters that her application to proceed in forma pauperis was a “good
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faith and accurate representation of her inability to pay the court filing fee” and that even if

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Plaintiff failed to make required disclosures during discovery, Defendant “demonstrates no

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prejudice” from this failure. (Dkt. No. 57 at 2, 8.)

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II.

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DISCUSSION
A.

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Motion to Dismiss
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Legal Standard

The Court may waive the filing fee for a plaintiff who brings an action upon a showing

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that the plaintiff is “unable to pay.” 28 U.S.C. § 1915(a)(1). For the Court to consider such a

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request, a plaintiff must submit “an affidavit that includes a statement of all assets” and other

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information demonstrating that “the affiant cannot pay the court costs and still afford the

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necessities of life.” Escobedo v. Applebees, 787 F.3d 1226, 1234 (9th Cir. 2015). Once a court

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grants an application to proceed in forma pauperis, the case must be dismissed “any time” a

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court determines that an “allegation of poverty is untrue” and made in bad faith. 28 U.S.C.

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§ 1915(e)(2)(A); Escobedo, 787 F.3d at 1232 n.8; see also Finan v. Good Earth Tools, Inc., 565

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F.3d 1076, 1080 (8th Cir. 2009) (dismissal pursuant to § 1915(e)(2)(A) is at the discretion of the

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court); Thomas v. General Motors Acceptance Corp., 288 F.3d 305, 308 (7th Cir. 2001) (same);

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Mathis v. New York Life Insurance Company, 133 F.3d 546, 548 (7th Cir. 1998) (same).

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2. Plaintiff’s Affidavit of Poverty Contains Bad-Faith Misrepresentations
Defendant’s I-864 support obligation is reduced by the extent of other sources of income.

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See Erler, 824 F.3d at 1178 (9th Cir. 2016). Therefore, the amount and source of Plaintiff’s

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income is a key issue in this case. Accordingly, Defendant received a variety of Plaintiff’s

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financial records throughout discovery and deposed Plaintiff on various financial matters. (See

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generally Dkt. Nos. 45, 47, 48, 49, 50, 51, 63, 64.) Based on the information Defendant gathered,

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he concluded that Plaintiff misrepresented her income, assets, and living expenses to the Court

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when preparing her affidavit of poverty. (Dkt. No. 44 at 2.) On this basis, Defendant moves to

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dismiss. (Id.) The Court reviewed the briefing and exhibits relating to Defendant’s motion to
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dismiss and was unable to reconcile the amounts Plaintiff reported in her affidavit of poverty

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with the financial activity occurring in her monthly bank and credit card statements. The Court

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then sought additional briefing from Plaintiff to address this issue. (See Dkt. No. 65.) Based on

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the totality of evidence before it, the Court concludes that Plaintiff’s affidavit of poverty

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contained bad-faith misrepresentations rather than mere inaccuracies.

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Plaintiff’s affidavit of poverty, prepared on April 22, 2017 and filed by counsel two days

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later, stated that Plaintiff had: no cash no hand; a checking account balance of $900; $23,000 in

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in a brokerage account that was “on loan from [her] parents” that she was obligated to return

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“once [she] become[s] more financially stable;” income over the last twelve months under

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$10,000, with the majority being gifts; and monthly living expenses just over $1,000 per month.

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(Dkt. Nos. 1 at 1–2, 58 at ¶ 6.) The Court cannot reconcile these amounts with Plaintiff’s

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financial records and her deposition testimony, which indicate significantly higher income and

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assets and significantly lower living expenses.

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For example, Plaintiff claimed on her affidavit of poverty that she received $6,000 in

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gifts during the twelve month period ending on April 22, 2017. (Dkt. No. 1 at 2.) Yet Plaintiff

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made ATM deposits during this period of $26,401. (Dkt. No. 65 at 3–4.) Plaintiff claims that of

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this amount only $6,181.09 were gifts. (Dkt. No. 67 at 5.) She claims $6,220 of ATM deposits

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represented a loan from her parents and that she “used only a small amount.” (Dkt. No. 67 at 3.)

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But according to Plaintiff’s affidavit of poverty, she had no cash on hand and an $800 checking

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account balance on April 22, 2017 (Dkt. No. 1 at 2). Plaintiff does not account for where this

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“loaned” cash went if she did not spend it and it was not in her bank account. Plaintiff further

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claims that $6,169 of the ATM deposits represent reimbursements from her now husband, Adam

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Higley, for items that he purchased using her credit card in order to improve her credit score.

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(Dkt. No. 67 at 5–6.) Plaintiff admits she “did benefit from and use some of these items” but “did

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not think this is a money gift.” (Dkt. No. 67 at 4.) Examples of items purchased on her credit

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card and then reimbursed by Mr. Higley, which Plaintiff did not report as gifts, include a “dress
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for me to wear to my best friend’s wedding,” frequent meals, groceries, and other retail

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purchases. (Dkt. No. 67 at 4); (see Dkt. Nos. 64-4 at 2–4; 67-1–67-7). Further, the meals,

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groceries, and purchases on Plaintiff’s credit card are in addition to similar purchases Mr. Higley

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made on his own credit card. (See Dkt. Nos. 64-2 at 3–6). Many of the purchases Mr. Higley

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made on Plaintiff’s behalf appear to be gifts, yet Plaintiff reported none. Further, Plaintiff’s

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affidavit of poverty does not reflect payments Mr. Higley made on Plaintiff’s behalf on a vehicle

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she later admits he leased and insured for her, or $800 in monthly gifts Mr. Higley admits he

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made to her during a portion of the period at issue. (See Dkt. Nos. 63-2 at 1, 64-3 at 3.) Finally,

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Plaintiff claims the remaining amount of unaccounted-for ATM deposits—approximately

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$3,400—represented cash gifts she received before April 2016, which she periodically deposited

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during the twelve-month period at issue. (Dkt. No. 67 at 5.) The Court finds this contention

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implausible, in light of the fact that Plaintiff claimed she had no cash on hand at the time she

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filed her affidavit of poverty. Therefore, based on the evidence presented, it appears Plaintiff

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significantly understated income from gifts on her affidavit of poverty.

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In addition, Plaintiff claims that “the majority” of the $23,000 she reported on her

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affidavit of poverty as being held in a brokerage account and representing a loan from her

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parents was properly excluded as gift income because it was, in fact, a loan from her parents that

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she did not spend. (Dkt. Nos. 57 at 5, 58 at ¶ 4.) Again, the Court is skeptical. First, Plaintiff

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transferred these funds so frequently between her brokerage, savings, and checking accounts

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during the twelve months preceding her affidavit of poverty that the total amount of deposits into

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her accounts relating to these funds, by her own admission, was $123,389. (Dkt. No. 67 at 9.)

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She asserts this was to “maximize the interest that I could earn.” (Id.) But she did not report this

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interest on her affidavit of poverty (See generally Dkt. No. 1.) Also, such active management

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implies a level of exercise and control not consistent with Plaintiff’s allegation that this was

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merely a loan she was holding with the intention of returning. Second, Plaintiff provides no

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documentation to support her allegation that she repaid her parents in May 2017. (Dkt. No. 58 at
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¶ 9.) Third, the balance of the loan from her parents keeps changing. Plaintiff indicated in an

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interrogatory, for example, that only $15,400 in her brokerage account related to a loan from her

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parents, with $6,000 coming from friends, and the remainder coming from her own earnings.

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(Dkt. No. 63-1 at 4.) At a minimum, by Plaintiff’s own admission, some portion of the amount

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held in her brokerage account at the time Plaintiff moved to proceed in forma pauperis was not a

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loan. What that amount is, the Court cannot say with any degree of certainty, as Plaintiff’s

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answers continue to evolve on this issue. Regardless, Plaintiff clearly overstated what portion of

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the account represented loaned funds, and this overstatement is a misstatement of her ability to

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“afford the necessities of life.” Escobedo, 787 F.3d at 1234.

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Nor can the Court reconcile the living expenses Plaintiff claimed on her affidavit of

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poverty with information now before the Court. Plaintiff claimed her monthly living expenses

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were $270 for transportation, $250 for food, $500 for rent, and $50 for her phone. (Dkt. No. 1 at

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1.) Yet, by her own admission, she was living rent-free with Mr. Higley at the time, he leased a

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vehicle for her and made the lease and insurance payments, and he paid the majority of items on

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her credit card bill, which, based on the Court’s review, include substantial food charges and her

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monthly T-Mobile phone bill. (See Dkt. Nos. 45-8 at 2; 63-1 at 2; 64-3 at 3; 64-4 at 2–4; 67-1–

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67-7.) Therefore, the Court concludes that Plaintiff significantly overstated her monthly living

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expenses on her affidavit of poverty.

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To dismiss a complaint pursuant to 28 U.S.C. § 1915(e)(2)(A), the Court must conclude

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that Plaintiff’s misrepresentations were the product of bad faith, rather than mere inaccuracy. See

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Escobedo, 787 F.3d at 1232 n.8. The totality of the evidence supports a finding of bad faith.

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First, the sheer size of the misrepresentations, as described above, suggest bad faith. See Mathis

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v. New York Life Ins. Co., Case No. C95-2770, slip op. (N.D. Ill. Aug. 16, 1996), aff’d, 133 F.3d

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546 (7th Cir. 1998) (failure to disclose $7,500 in home equity sufficient for a bad-faith

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determination even through affiant “barely can live and avoid foreclosure on [the] home.”).

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Second, the purchases made using Plaintiff’s and her then-fiance’s credit cards in and around the
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date Plaintiff moved to proceed in forma pauperis are not consistent with someone who “cannot

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pay the court costs and still afford the necessities of life.” Escobedo v. Applebees, 787 F.3d at

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1234. Those purchases include $1,000 in jewelry on the day she filed her application and

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$411.92 at Macy’s the following week. (Dkt. Nos. 64-2 at 21, 67-6 at 3.) Third, Plaintiff had

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significant professional accounting experience and was studying to become a certified public

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accountant at the time she prepared her affidavit of support, and counsel filed Plaintiff’s affidavit

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on her behalf—undermining any claim that misstatements were no more than innocent mistakes.

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(Dkt. Nos. 27-1 at 3, 27-2 at 3, 27-4 at 2, 58 at ¶ 6.) Fourth, Plaintiff repeatedly alleged in her

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supplemental briefing to the Court that many of the deposits into her bank account represented

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cash received prior to the twelve-month period preceding preparation of her affidavit of poverty,

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yet she claimed to have no cash on hand in her affidavit. (Compare Dkt. No. 67, with Dkt. No.

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1.)

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Based on the totality of the evidence presented, the Court concludes that Plaintiff's

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misstatements on her affidavit of poverty were intentional and were the product of bad faith. On

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this basis, dismissal is warranted. Further, for dismissal to be an effective sanction, it must be

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with prejudice. See Kennedy v. Huibregtse, 831 F.3d 441, 444 (7th Cir. 2016) (dismissal without

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prejudice “would seem little punishment at all”); see also Thomas, 288 F.3d at 306 (committing

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the issue to the discretion of the dismissing court).

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Accordingly, the Court GRANTS Defendant’s motion to dismiss with prejudice.

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B.

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Defendant also moves for attorney fees, alleging that such an award is warranted based

Motion for Discovery Sanctions

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on the following discovery violations: Plaintiff failed to disclose in her July 2017 initial

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disclosures that her fiance, Mr. Higley, was a person with discoverable information; Plaintiff

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indicated in her first set of interrogatories, filed five days before her September 10, 2017

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marriage ceremony to Mr. Higley and months after she and Mr. Higley had obtained a marriage

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license, that she did not anticipate any changes in her income for the next two years; and Plaintiff
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failed to update her disclosures following her re-marriage until Defendant specifically asked

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about the marriage in Plaintiff’s November 27, 2017 deposition. (Dkt. Nos. 45-12 at 1, 45-20 at

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2, 45-21 at 2, 53 at 2.)

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1.

Legal Standard

A party must provide contact information for individuals likely to have discoverable

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information. Fed. R. Civ. P. 26(a)(1)(A)(i). If a party has made initial disclosures under Rule 26,

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then the party must supplement or correct the disclosure “in a timely manner if the party learns

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that in some material respect the disclosure or response is incomplete or incorrect, and if the

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additional or corrective information has not otherwise been made known to the other parties.”

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Fed. R. Civ. P. 26(e)(1)(A). Similarly, a party must “fully” respond to interrogatories “under

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oath,” i.e., truthfully. Fed. R. Civ. P. 33(b)(3).

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Where a party fails to meet its discovery obligations, the Court may order “payment of

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reasonable expenses, including attorney’s fees, caused by the failure” or “impose other

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appropriate sanctions” such as dismissal, unless the failure was substantially justified or

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harmless. Fed. R. Civ. P. 37(c)(1)(A)–(C). The party “facing sanctions bears the burden of

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proving that its failure to disclose the required information was substantially justified or is

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harmless.” R&R Sails, Inc. v. Ins. Co. of Pa., 673 F.3d 1240, 1246 (9th Cir. 2012). To determine

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whether a party has met its burden showing harmlessness, the Court will consider the following

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factors: (1) whether there is any prejudice or surprise to the party against who the evidence is

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offered; (2) whether the prejudice could be cured; (3) the likelihood of disrupting the trial; and

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(4) any evidence of bad faith. Mercer Pub., Inc. v. Smart Cookie Ink, LLC, Case No. C12-0188-

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JLR, slip op. at 3 (W.D. Wash. July 25, 2012) (citing David v. Caterpillar, Inc., 324 F.3d 851,

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857 (7th Cir.2003). The Ninth Circuit has given district courts broad discretion to issue

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sanctions. Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001).

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But “the court can shift only those attorney’s fees incurred because of the misconduct at issue.”

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Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186 (2017).
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2.

Duty to Disclose Relationship with Mr. Higley

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Plaintiff does not dispute that she had an obligation to disclose her relationship with Mr.

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Higley. (See generally Dkt. No. 57.) At issue is whether Plaintiff’s failure to timely disclose her

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re-marriage was the result of Plaintiff’s bad faith and whether it was prejudicial to Defendant.

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See David, 324 F.3d at 857.

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As to the issue of bad faith, Plaintiff made certain disclosures regarding Mr. Higley

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before being prompted by Defendant in her November 27, 2017 deposition. For example, in

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Plaintiff’s September 5, 2017 responses to Defendant’s first set of interrogatories, Plaintiff

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indicated that Mr. Higley, began providing financial support in October 2015 and co-signed a car

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lease in 2017. (Dkt. Nos. 45-21 at 1, 59-1 at 1.) While this falls well short of full and timely

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disclosure, the information Plaintiff provided was sufficient to put Defendant on notice that

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further investigation was needed. Further, the Ninth Circuit’s examples of bad behavior are far

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worse than Plaintiff’s behavior in this action. They include willful destruction of evidence, use of

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fraudulent evidence to obtain a favorable verdict, and counsel’s reckless, repeated introduction of

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prohibited testimony during trial. R&R Sails, Inc., 673 F.3d at 1247. Accordingly, the Court

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finds bad faith has not been clearly demonstrated in this instance.

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As to the issue of prejudice, Defendant argues that had he known of the marriage, he

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would have incurred but a small portion of the attorney fees here. (Dkt. No. 44 at 8.) This is

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because Defendant would have been willing to negotiate a settlement with the knowledge that his

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future I-864 support obligation would have been effectively limited by Plaintiff’s community

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property interest in her new husband’s wages. (Dkt. No. 61 at 9); (see Dkt. No. 63-3 at 1)

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(October 2017 e-mail from Plaintiff’s counsel reminding Defendant of a potential lifetime

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support obligation). 1 This argument is speculative and self-serving. The Court has no way to

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know what settlement Defendant may have entertained. Furthermore, Defendant deposed

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The Court considers this document for purposes other than proving the validity of an
amount or for impeachment. Fed. R. Evid. 408.
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Plaintiff on November 27, 2017 and was able to obtain the information necessary to gauge the

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financial impact of Plaintiff’s marriage to Mr. Higley. (See generally Dkt. Nos. 45-1, 45-3–45-5,

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45-7–45-10, 45-13, 45-14, 45-16, 45-17, 45-19.) From this point forward, Defendant had full

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information to negotiate for settlement. Instead, he chose to make the instant motion, incurring

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yet additional attorney fees. (See generally Dkt. Nos. 44–55, 60–64.) Accordingly, the Court

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finds prejudice is lacking.

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Neither bad faith nor prejudice has been adequately demonstrated. On this basis, the

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Court DENIES Defendant’s motion seeking attorney fees.

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III.

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CONCLUSION
For the foregoing reasons, Defendant’s motion to dismiss and for discovery sanctions

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(Dkt. No. 44) is GRANTED in part and DENIED in part. The case is dismissed with prejudice

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but without an award of attorney fees.

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DATED this 19th day of March 2018.

A

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John C. Coughenour
UNITED STATES DISTRICT JUDGE

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