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Hundt v. Directsat Usa, LLC

United States District Court, N.D. Illinois, Eastern Division

July 15, 2014

DARRICK HUNDT, on behalf of himself and all other Plaintiffs similarly situated, known and unknown, Plaintiff,
DIRECTSAT USA, LLC, et al., Defendants.


JOAN B. GOTTSCHALL, District Judge.

Plaintiff Darrick Hundt sued his employer, DirectSat USA, LLC; its corporate parent, UniTek USA, LLC; and three corporate officers, Elizabeth Downey, Cathy Lawley, and Dan Yannantuono, alleging violations of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201, et seq., and the Illinois Minimum Wage Act (IMWA), 815 Ill. Comp. Stat. 5/2-209. The court granted conditional collective-action certification and allowed Hundt to bring his FLSA claim on behalf of the eighteen similarly-situated employees who opted to join the collective action under 29 U.S.C. § 216(b). Defendants then moved to decertify the FLSA class and for summary judgment on the FLSA claim. The court granted both motions on July 1, 2013, leaving only Hundt's IMWA claim pending before the court. On September 4, 2013, the court entered summary judgment in favor of defendants on that claim as well.

Defendants now move for attorneys' fees pursuant to the bad-faith exception to the American Rule, Rule 11 of the Federal Rules of Civil Procedure, and 28 U.S.C. § 1927. For the reasons stated below, the motion is denied.


Plaintiff Darrick Hundt filed this action on behalf of himself and others similarly situated arguing that defendants misclassified them as "exempt" and violated the FLSA by failing to pay them overtime. Plaintiff's counsel is also counsel of record in an earlier-filed case, Farmer v. DirectSat USA, LLC, No. 08 C 3962 (N.D. Ill. filed July 11, 2008). During discovery in Farmer, plaintiff's counsel deposed Hundt as a non-party witness. DirectSat alleges that at the deposition, plaintiff's counsel actively solicited Hundt and informed him that he might have a claim against DirectSat. About two weeks later, Hundt filed the instant lawsuit. On March 18, 2010, DirectSat filed a motion for sanctions against plaintiff's counsel before the Farmer court, alleging that counsel had violated that court's express order forbidding them from making use of discovery for another purpose. The Farmer court granted the motion and fined plaintiff's counsel $5, 000.

Like much litigation, this case continued with disagreements requiring court intervention including motions to compel on both sides. On February 26, 2009, on consent of the parties, the court entered an order requiring defendants to produce the class list "for all warehouse managers employed by the Defendant within the past three years" and allowing plaintiff to mail the approved notice to those individuals. (Agreed Order 1, ECF No. 28.) Against defendants' objections, on May 17, 2010, the court granted plaintiff's motion to file an amended complaint "to (i) add UniTek, Yannantuono, Downey, and Lawley as defendants, and (ii) expand the putative class of plaintiffs to include warehouse supervisors and other similarly-titled positions.'" (Order 18-19, ECF No. 102.) Following disputes over who was included within the above-defined class and plaintiff's motion to provide notice to additional individuals, the court ordered defendants to provide notice to five people who defendants admittedly failed to notify and to provide a list "of all warehouse supervisors, general managers, field supervisors, and other warehouse employees classified as exempt from overtime pay." (Order, May 24, 2010, at 8-9, ECF No. 104.) Following the second round of putative class-member notifications, approximately 60 additional plaintiffs joined the collective action. Plaintiff's counsel filed a motion to voluntarily dismiss 48 of the new plaintiffs stating that their claims "were not similar enough to the warehouse managers' claims to be suitable for adjudication in this collective action." (Pl.'s Mot. to Dismiss Opt-in Pls. 2, ECF No. 165.) Both parties then filed cross-motions for summary judgment, and defendants moved to decertify the class. On July 1, 2013, the court granted defendants' motion to decertify the class and their motion for summary judgment on Hundt's FLSA claim. Defendants now seek the $447, 195 in fees they incurred during this litigation.


A. Bad-Faith Exception to American Rule

The prevailing American rule is that both parties in federal litigation must pay their own attorneys' fees, absent statutory obligation or contractual agreement between the parties. Menke v. Monchecourt, 17 F.3d 1007, 1009 (7th Cir. 1994) (citing Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 263-64 (1975)). "[A]n exception allows federal courts to exercise their inherent power to assess such fees as a sanction when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons...." Chambers v. NASCO, Inc., 501 U.S. 32, 33 (1991).

B. Rule 11 Sanctions

Rule 11 of the Federal Rules of Civil Procedure provides that by presenting a pleading to the court, an attorney is representing that the pleading "is not being presented for an improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation;... [and] the factual contentions have evidentiary support, or... will likely have evidentiary support after a reasonable opportunity for further investigation or discovery." Fed.R.Civ.P. 11(b)(1), (3). If a party violates Rule 11 by "making arguments or filing claims that are frivolous, legally unreasonable, without factual foundation, or asserted for an improper purpose, " the court may impose an appropriate sanction after notice and a reasonable opportunity to respond. Fries v. Helsper, 146 F.3d 452, 458 (7th Cir. 1998). A frivolous claim is "one that is baseless and made without a reasonable and competent inquiry.'" Id. (quoting Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1990) (en banc)). Rule 11 is not a fee-shifting statute; it is a "law imposing sanctions if counsel files with improper motives or inadequate investigation." Mars Steel Corp. v. Cont'l Bank N.A., 880 F.2d 928, 932 (7th Cir. 1989) (en banc).

C. 28 U.S.C. § 1927

Section 1927 of Title 28 of the United States Code provides that "[a]ny attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, ...

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