This is latest column in our continuing series on real mistakes and misdeeds by real lawyers in cases on appeal.
Purchasing Power, LLC v. Bluestem Brands, Inc., 2017 U.S. App. LEXIS 4918 (11th Cir. Mar. 20, 2017)
Generally, when an appellate opinion states that the case “was a colossal waste of time and effort,” id. at *19, you would think that the case did not go well for the attorneys. Here, however, the lawyers should be consoled that it could have been much worse.
The decision, which arose from the appeal of a sanctions order against Purchasing Power’s counsel, stemmed from a case that began in Georgia state court as a commercial dispute between two competitors. Bluestem removed the case to federal court on diversity grounds, relying on information received from Purchasing Power’s counsel that none of the limited liability company’s members shared citizenship with Bluestem. After two and a half years of litigation, the district court granted summary judgment in favor of Bluestem. Only on appeal, when the Eleventh Circuit raised a question sua sponte, was it discovered that one of Purchasing Power’s members was actually owned by a corporation whose citizenship destroyed diversity. As the court of appeals explained,
[e]veryone involved in this case trusted that diversity jurisdiction existed, but no one verified it. The law firms trusted their clients. The clients trusted their lawyers. The law firms trusted each other, and the district court trusted them. But there was no verification.
Id. at *2.
After the Eleventh Circuit dismissed the merits appeal, the district court imposed sanctions on Purchasing Power’s attorneys for “fail[ure] completely to perform their professional duties to the Parties and the Court,” ordering the lawyers to pay $582,385 in fees to Bluestem. Id. at *6.
On the appeal of the sanctions order, the Eleventh Circuit reversed, ruling that the district court had used the wrong standard in ordering sanctions on the basis of recklessness rather than bad faith. The court pointed out that Bluestem, as the removing party, had the burden to prove diversity jurisdiction—so its failure was in part responsible for the jurisdictional error in the district court. The court concluded thus: “We trust that the damages to the parties’ credibility, finances and time is enough of a sanction to curb their conduct and serve as a warning to future diversity litigants.” Id. at *19.
The attorneys avoided paying over a half-million dollars in sanctions, but their public image and reputation certainly took a blow. All of us would do well to heed the court’s warning in our own cases.