A Cautionary Tale About Poor Client Selection and Lack of Candor

But the state and federal courts have come down hard in the past year on what many see as “malicious and abusive” filings. Investigations have revealed that many cases were actually pursued by litigation funding organizations that stayed in the background after recruiting lawyers with online “job opportunities” and then training those lawyers on finding clients and on the format of the pleadings to be filed and the early settlement demands to be made. Federal court litigation in New Mexico prosecuted this year demonstrates how these cases worked and how one plaintiff and her attorney met stiff resistance and ended up with a very bad outcome. The attorney resigned from the practice of law in lieu of disciplinary action and cannot reapply for admission for at least three years. And the plaintiff, now pro se, has been hit with at least $38,300 in filing fees to be repaid and the possibility of attorney fee applications being filed in the 67 cases that remained active after two evidentiary hearings (down from the 99 cases she originally filed). Carton v. Carroll Ventures, Inc., No. 1:17-cv-00295-LF-KBM (D.N.M.). The following is from document 20, filed on July 10, and document 21, filed on October 26, 2017.

In this case, the plaintiff, who used a wheelchair and did not drive, was supplied with a driver who photographed her at the various places of public accommodation she visited around Albuquerque. The lawsuits were identical except for the names of the defendants (some of which were described only by a physical address or a first name). All were filed in federal court, and in all but two of them, the plaintiff obtained in forma pauperis status and was excused from paying filing fees. As the 99 cases were filed in the span of a couple months, the cases drew scrutiny from the court. The chief federal district judge entered an order in April referring the cases to the chief federal magistrate judge to conduct an evidentiary hearing and to determine whether the cases were subject to dismissal. The chief federal district judge cited the statute governing in forma pauperis cases, which provides, “Notwithstanding any filing fee, or any portion thereof that may have been paid, the court shall dismiss the action at any time if the court determines that . . . the action . . . is frivolous or malicious.” 28 U.S.C. § 1915(e)(2). The chief federal magistrate judge set a hearing for May 1, ordered the plaintiff and her lawyer to appear, and gave notice of the hearing in all the cases. Several of the cases were voluntarily dismissed by the plaintiff in the days leading up to the hearing. A couple of the cases were settled before the hearing.

The plaintiff failed to appear at the hearing. The courtroom was filled with some 40 lawyers, news reporters, and spectators. When the judge questioned why the plaintiff was not present, the lawyer claimed to have received a text message just shortly before that her client could not get to the courthouse. The judge proceeded and asked the attorney many questions. Among other things, the attorney asserted that the plaintiff had come to her on her own and that together they then “contacted a group that specializes in this work.” The group was in Arizona, and the attorney flatly denied that it was the same “group” that had filed more than 1,000 ADA cases in that state in 2016. She said she had never done ADA work before and that these cases were simply the product of a contact from the plaintiff and not part of some “cottage industry” as had been identified in court decisions in other states regarding other mass ADA filings. The attorney also claimed she had drafted the 99 lawsuits herself, creating the first one and then using it as the model for all the others. She said that she and the plaintiff had talked about “all the barriers she faced every day” but that she hadn’t actually visited any businesses before the first pleading was drafted. The attorney claimed to have subsequently visited “most” of the businesses that were sued.

Because of the absence of the plaintiff, the court set a second hearing on May 11. The plaintiff and her lawyer appeared that day, and the courtroom was filled again. The court took testimony and, in its subsequent order, noted that the attorney “did an ‘about face’” on statements she had made at the first hearing. The most significant was she revealed there actually was a “confidential ‘litigation funding agreement’ with a previously undisclosed entity.” The attorney said she had first connected with the entity after she had “answered an ad for civil rights attorneys on Indeed.” The court noted “that ‘Indeed.com’ is a website which touts itself as ‘the world’s #1 job site.’” The attorney claimed she did not sign the agreement with the litigation funding entity until after she met the plaintiff. The attorney explained the entity was responsible for “paying the filing fees, and they were providing staff, and they paid her the money to reimburse her for any litigation expenses.” Among other things, the funding agreement provided that the plaintiff would be paid $50 for each claim that resulted in a lawsuit and that the plaintiff gave the entity “full and complete authorization to negotiate and accept any settlement.” A separate fee agreement between the plaintiff and the attorney provided the attorney would receive $100 per case filed, as well as any recovery, less expenses, received by settlement or court award. As the lawsuits were filed and counsel for the defendants were retained and contacted the attorney, they received settlement demands by email from a paralegal purportedly acting on behalf of the attorney. The demands typically were for payment of $3,000 to $4,000, described as fees and costs based on efforts expended to date by the attorney, as well as remediation of the alleged violation at the business site.

At the second hearing, the plaintiff explained that a driver, apparently hired for her, went to various locations to take measurements and then would take the plaintiff there to “observe” violations and photograph her at the site. This was despite the allegation in each lawsuit that the plaintiff “visited the Premises, encountered barriers to access . . . engaged and tested those barriers.” Although the attorney had told the court she had visited “most” of the sites, the plaintiff declared otherwise, saying, “I think there might have been one or two” that the attorney visited with her.

The plaintiff also testified she thought that the attorney had disclosed the arrangement for the funding entity to pay the filing fees in connection with the applications for in forma pauperis status, but even at the second hearing, the attorney continued to maintain that the plaintiff couldn’t pay the fees. The court required production of the funding agreement, which showed there was a clause stating, “The Parties agrees [sic] not to disclose the existence of this Agreement, or any of its terms. . . . [I]f asked directly, the Parties may state that they entered into a confidential agreement for litigation support.” The court found “disingenuous [the attorney’s] assertion that she did not believe it was necessary to disclose the funding agreement to the court because she understood [in forma pauperis status] was based solely on [the plaintiff’s] income.” The court similarly found the attempt to distinguish the payment to the plaintiff of $50 per case as “advanced costs,” rather than a payment for the case itself, to be “in bad faith.”

The plaintiff claimed to have wanted to give the targeted businesses a chance to remedy deficiencies before any lawsuits were filed. But the attorney decided otherwise, claiming the plaintiff had told her she had been previously unsuccessful in working out resolutions to access issues and wanted “to enforce her individual right to be a plaintiff in the ADA. . . .” The attorney then added, “It was a professional choice. I thought we would be more successful. It was a judgment call.” The attorney claimed, “All of them we tried to settle. Every single case, as soon as it was filed, each person was contacted to try to remediate and settle immediately to fix the violation. They were all sent letters. . . . They all had a very small demand to cover the fees that we—our litigation costs. Very small amounts.” The plaintiff testified that she had no knowledge of the settlement demands or their amounts.

The court concluded in all of this that the plaintiff’s expectation of receiving any settlement proceeds was “as in a carnival shell game . . . illusory.” The plaintiff would be paid $50 per case for “advanced costs,” the attorney would be paid $100 for each filed case, the funding entity would be “reimbursed” for the expenses of the case including the paralegal and driver services, and the attorney would receive the remainder of any recovery. The court further found that it “was misled into believing [the plaintiff] lacked the resources to pay the required filing fees and that these cases were filed in bad faith primarily for the purpose of coercing settlements.” The court recommended to the chief federal district judge that the cases be dismissed with prejudice and the full amount due for filing fees be assessed. That recommendation was adopted in an order filed on October 26.

Presumably sometime after the first May hearing, a disciplinary proceeding was instituted against the attorney, and in a petition filed on September 26 in the New Mexico Supreme Court, she sought and was allowed to resign from the practice of law in lieu of discipline. She may not apply for readmission or reinstatement for the next three years. She paid a high price for these cases.

So what is the takeaway here? Be careful in accepting cases or clients, especially from sources like online advertisements. Know your clients and their motivations. If a proposed representation sounds too good to be true, it probably is. And be honest with the court. These things are so basic, they should go without saying. But there are many traps for the unwary or for those unwilling to listen to that small voice inside that may be warning of danger.

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