A federal appellate ruling reminds attorneys that misunderstanding the Federal Rules of Civil Procedure can devastate a client’s case. A court dismissed a litigant’s complaint when his attorney misinterpreted the rules and missed the deadline for filing an answer. The attorney’s actions did not qualify as the “excusable neglect” required to grant an extension of time under the rules, the court found. ABA Litigation Section leaders suggest that attorneys in doubt should always consult an expert on applicable rules of procedure, particularly when dealing with uncommon rules or those with exacting requirements.
In L.A. Public Insurance Adjusters, Inc. v. Nelson, the plaintiff employer hired the defendant employee as a claims adjuster. The employer terminated the employee after a few weeks and sued him in Texas state court for defamation and to enforce the employee’s noncompete agreement.
The employee filed a counterclaim against the employer for unpaid commissions and removed the case to federal court. The employer did not answer the counterclaim in Texas court or in federal court because its counsel misunderstood Federal Rule of Civil Procedure 81(c)(2). Rule 81(c)(2) provides that a defendant “who did not answer before removal must answer or present other defenses or objections under these rules” either within 7 or 21 days depending on the circumstances.
Two years later, during summary judgment proceedings, the employer retained new counsel. The new attorneys sought leave to answer the counterclaim under Rule 6(b)(1)(B), which allows an extension of time due to a party’s “excusable neglect.” Significantly, the new lawyers asserted a new affirmative defense that had not been raised in the employer’s summary judgment briefs, arguing that the employer should not suffer the effects of its prior counsel’s error. The trial court allowed the employer to answer without ruling on the “excusable neglect” issue, as well as to file a second summary judgment motion. It ultimately granted summary judgment in favor of the employer.
The U.S. Court of Appeals for the Fifth Circuit reversed and remanded, holding that a party’s reliance on bad advice from its counsel did not constitute excusable neglect. It reasoned that having chosen its attorneys, the employer was bound by the consequences of that choice. The appellate court noted that the employer knew or should have known that the pleadings were deficient many months earlier and that the long delay unfairly prejudiced the employee, circumstances which did not weigh in favor of finding excusable neglect. Though it acknowledged that a misunderstanding of the rules could potentially constitute excusable neglect, the Fifth Circuit noted that would be a “rare case” because “one who fails to act diligently cannot invoke equitable principles to excuse that lack of diligence.”
Additionally, the appellate court noted that the employer asserted a new defense that it could not plead under the rules. It explained that under Texas Rule of Civil Procedure 92, failure to respond to a counterclaim is deemed a general denial. However, Federal Rule of Civil Procedure 9(c) requires that affirmative defenses asserting that a condition precedent has not occurred or not been performed be pled with particularity. The employer contended in its new affirmative defense that the employee was not entitled to commissions because he did not complete his probationary employment period—a denial that a condition precedent had been satisfied. Accordingly, the Fifth Circuit concluded that because the employer failed to plead its affirmative defense with particularity as required by Rule 9(c), that precluded it from “later rely[ing] on such a theory, including at the summary judgment stage.”
Litigation Section leaders advise that understanding the Federal Rules is crucial. “Make sure you know and follow the rules. If you’re not comfortable that you know the rules, look them up or bring in someone that can help you with it,” advises Michael S. LeBoff, Newport Beach, CA, cochair of the Section’s Professional Liability Committee.
Attorneys especially need to make sure they understand the rules dictating that certain defenses be pled with particularity. “A lot of lawyers are not aware of Rule 9(c). A defendant needs to recognize that a general denial does not satisfy Rule 9(c),” states John M. Barkett, Miami, FL, cochair of the Section’s Ethics & Professionalism Committee. “If you do not deny ‘with particularity’ that the condition precedent has occurred or been satisfied, you will not be able to rely on that defense,” he explains.
Section leaders further recommend that attorneys should not count on the court to find excusable neglect when they make mistakes. “It is pretty hard to show excusable neglect, so do not ever put yourself in a situation where you need to rely on it,” counsels Barkett. “A death in the family, a car accident, or a natural disaster like a hurricane or an earthquake are examples of when the court might find excusable neglect,” he states.
While excusable neglect is a tough standard, Section leaders believe that there could be a good argument for excusable neglect when a second attorney comes in and easily identifies the mistake. “In most instances, the client is forced to rely on the attorney’s knowledge of the law. In the LAPIA case, the new attorney came in and informed the client that the previous attorney made a mistake by not filing an answer. So it was surprising that the court did not find excusable neglect due to the initial attorney’s mistake,” LeBoff concludes.
