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Nogess v. Poydras Center, LLC

United States District Court, E.D. Louisiana

January 30, 2017

MICHELLE NOGESS, ET AL.
v.
POYDRAS CENTER, LLC, ET AL.

         SECTION: “A” (5)

          ORDER AND REASONS

          MICHAEL B. NORTH UNITED STATES MAGISTRATE JUDGE.

         There are currently two matters before the Court, both of which arise from the improper removal of this action by Defendant, Velocity Consulting, Inc. (“Velocity”). The first matter is Velocity's Motion for Leave to File Amended Notice of Removal (rec. doc. 38), which seeks to correct omissions in its original Notice of Removal (the “Notice”). (Rec. doc. 1).[1] That Motion and the hearing thereon have, in turn, precipitated the second matter currently before the Court, which is a Rule to Show Cause issued by the Court directing that Velocity and/or its counsel, Matthew J. Ungarino (“Ungarino”), David Bordelon (“Bordelon”) and their firm, Ungarino & Eckert, L.L.C. (“U&E”)(collectively the “Respondents”), show cause why they should not be assessed costs and/or fees or otherwise sanctioned under 28 U.S.C. §1447(c), 28 U.S.C. §1927, and/or Federal Rule of Civil Procedure 11, for the filing of the original improper Notice of Removal in this consolidated matter. (Rec. doc. 48).

         The Court has received briefing on both matters and has now held hearings on each. Based upon the submissions of the parties, the arguments of counsel at the hearings and the Court's review of the record of this case as well as the applicable law, the Court issues the following ruling as to both the Motion for Leave to Amend and the Rule to Show Cause on possible sanctions.

         I. THE RELEVANT PROCEDURAL HISTORY OF THE CASE

         This case was filed in state court on February 10, 2016 against Poydras Center LLC; Poydras Center Manager, Inc. (“Poydras Defendants”); Bobby Schloegel; and the Travelers Casualty Company (collectively the “Original Defendants”).[2] (Rec. doc. 1-1 at p. 1). The Original Defendants each answered the Petition and conducted discovery in the state-court proceeding. (Id.).

         On June 10, 2016, Plaintiff, Michelle Nogess, filed her First Supplemental and Amending Petition, adding Velocity and EMG Corporation (“EMG”) as Defendants. (Rec. doc. 1-1 at p. 31). The Original Defendants answered that petition. (Id. at 56). After being served with process on September 13, 2016, Velocity removed the matter to this Court on October 5, 2016. (Rec. doc. 1).[3]

         On November 3, 2016, both Plaintiffs filed Motions to Remand, arguing in part that Velocity had failed to properly allege the citizenship of the Poydras LLC members under applicable United States Fifth Circuit precedent, rendering the Notice “defective on its face and making remand mandatory.” (Rec. doc. 16-1)(citing Harvey v. Grey Wolf Drilling, 542 F.3d 1077 (5th Cir. 2008)).[4] Apparently recognizing that its Notice was, indeed, defective due to its failure to identify any members of Poydras LLC or to allege their citizenship, Velocity responded to these Motions to Remand in part by filing its Motion for Leave to File Amended Notice of Removal, to specifically allege the identity and citizenship of each of the LLC members. (Rec. doc. 38).[5]

         Plaintiff, Michelle Nogess, filed an opposition to the Motion for Leave and the Court set the matter for hearing. (Rec. docs. 42, 40). Prior to that hearing, the District Judge stayed the outstanding Motions to Remand pending this Court's determination on Velocity's effort to amend the Notice. (Rec. doc. 41).

         II. THE HEARING ON VELOCITY'S MOTION

         To fully understand the details and importance of the issues raised at the hearing on Velocity's motion and the follow-on hearing on the Rule to Show Cause, one must first understand the extraordinary and unfortunate personal jurisprudence that has developed over many years surrounding Ungarino's and U&E's history of improper removals. The recitation of at least part of this history will provide necessary context for a discussion of the issues currently before this Court.

         A. Ungarino & Eckert's “Long Line of Fraudulent and Improper Removals”

         This case is not one involving an isolated improvident removal by a law firm that made a simple, one-time mistake or omission in its removal papers. Rather, it is the latest in a “long line of fraudulent and improper removals that Ungarino & Eckert, and more specifically Matthew Ungarino, have filed in this and other districts.” Hollier v. Willstaff Worldwide, Inc., No. 08-CV-1382, 2009 WL 256503 at *2 (W.D. La. Feb. 3, 2009)(Melancon, J.). It was this history of improper removals that prompted the Court to order Ungarino to appear at the December 21 hearing.

         In Hollier, Judge Melancon, citing more than 20 separate cases involving improper removals by Ungarino and his law firm, declared “[e]nough is enough.” Id. at *2-3.[6] Judge Melancon found that “[a]s warnings and lesser sanctions in the past have failed to deter the firm of Ungarino & Eckert from its vexatious practices, the Court is left to consider whether a more major sanction is necessary to achieve the desired result.” Id. He granted Plaintiffs' motion for attorneys' fees and costs under 28 U.S.C. § 1447(c) and set a rule to show cause why the court: (1) should not impose sanctions of at least $25, 000 against U&E and (2) should not recommend to the District Judges of the Western District of Louisiana that U&E be barred from practicing in the Western District. Id. at 3. Judge Melancon ordered U&E to file a brief explaining why these sanctions should not be ordered, which the firm did on March 2, 2009. (Rec. doc. 43 in No. 08-CV-1382).

         Shortly after U&E's brief was filed in the Hollier case, another judge of the Western District of Louisiana issued an opinion finding that U&E had failed to properly allege the citizenship of its own client and allowing the firm additional time to amend its notice of removal in that case. Tyler v. Granite State Ins. Co., No. 09-CV-8065, 2009 WL 799696 (W.D. La. March 25, 2009). In that case, Magistrate Judge Hornsby also cited his own previous decisions in which he issued orders to U&E that carefully spelled out the rules for alleging corporate citizenship because “[a]lmost every notice of removal filed by the firm in recent years has been defective for one reason or the other, with the most common problems being failure to meet the minimal requirements of pleading the parties' citizenship and failure to plead or point to facts adequate to satisfy the amount in controversy requirement.” Id. at *1 (emphasis added).[7]

         Magistrate Judge Hornsby ultimately declined to impose sanctions against U&E in Tyler, “trusting that Judge Melancon will have gained the firm's attention in Hollier when he put at issue the possibility that the members of the firm will be barred from practicing in the Western District of Louisiana.” Id. Notably, he also pointed to the fact that the firm had recently filed a brief in Hollier in which it represented that it would conduct training in removal practice and would “form a committee of partners who will review any notice of removal before it is filed.” Id. Judge Hornsby then expressed “the sincere wish of the court that the training and committee are successful . . . and end the firm's long history of filing deficient and time-wasting notices of removal.” Id. at *2.

         Thereafter in Hollier, Judge Melancon held a hearing on the rule to show cause, at which Ungarino apologized to the Court for his “improper removal” in that case, admitting that the “inquiry conducted into the jurisdictional facts set forth in the notice of removal was unreasonable.” (Rec. doc. 51, p. 4 in No. 08-CV-1382). Ungarino also assured Judge Melancon that his firm had “undertaken significant remedial measures” to avoid future improvident removals, including hiring two law professors to conduct training on ethics and removal procedure and - most notably for purposes of this case - creating a “professional responsibility committee of equity partners who coordinate in-house ethics and removal training, review the form and content of all notices of removal and opposition to remand, and otherwise serve as a ready resource for ethics and removal issues.” (Id. at pp. 5-6).

         At the conclusion of the hearing, Judge Melancon found that Ungarino “failed to conduct a reasonable inquiry under the circumstances prior to the removal of this matter to federal court, as admitted here today by Mr. Ungarino, based on the record of the proceeding, as well as the filings that were made pursuant to the Court's order.” (Id. at p. 7). In declining to bar U&E from practicing in the Western District, Judge Melancon made the following comments, germane to the present matter:

I'm not sure why it took so long to learn the lesson, but I really do believe, from what you have said here today and what you did before you got here today, as far as trying to bring your firm up to snuff, that you obviously got it, and I believe that. If I didn't believe it, I wouldn't say it, and I might not do what I'm about to do. But because I do believe that, if there is a violation in the future - and again, I'm not - wouldn't want to deter you or anybody in your firm from zealously representing your clients' interests in the future to the full extent of your ability to do so - it would certainly be a very, very heavy price to pay for this judge, and I would suspect - again, not speaking for my colleagues at the district or magistrate judge level in the Western District. I suspect it would be a very, very, very heavy price to pay with them. So, again, you have got the tools. Your firm has gotten the tools to be able to dot your Is and cross your Ts and represent your clients to the fullest extent of the law consistent with whatever ethical obligations that good lawyers should use in their zealous representation of their client. So, like I say, it's a good thing, but it's a double-edged sword, and I'm sure you understand that. I trust that the other attorney in your firm understand that.

Id.

         This Court reiterates at this point that the foregoing history is not cited as a cause for any sanction or discipline in this case but to provide necessary context to these proceedings. Had it not been for this history, for this “long line of fraudulent and improper removals, ” U&E would likely not have felt it necessary to create its “professional responsibility committee, ” the ostensible purpose of which is to avoid the exact situation now before the Court. The firm's extensive history and experience in initiating improper and/or premature removals and being repeatedly admonished for that conduct is also germane to the question whether, under Rule 11, Ungarino and Bordelon should be subject to sanctions for failing to conduct a reasonable inquiry into the facts supporting removal under Rule 11.

         B. The Hearing on Velocity's Motion

         As noted, the hearing on Velocity's Motion to Amend initially went forward December 21, 2016. (Rec. doc. 48). In advance of that hearing, the Court issued an Order directing that Ungarino, as lead counsel and the attorney who signed the Notice, appear personally at the hearing. (Rec. doc. 43). In response to that Order, Ungarino wrote the Court (copying all counsel of record), asking that he be excused from attending the hearing because, among other reasons, he had “no personal knowledge of the citizenship of the co-defendants' clients, ” despite having signed both the Notice and the proposed Amended Notice (“Amended Notice”). (Rec. doc. 47). The Court declined that request.

         At the December 21 hearing, the Court questioned Ungarino and Bordelon concerning the Notice and the shortcomings therein that prompted Velocity's Motion for Leave to Amend that Notice. The Court noted U&E's well-established reputation for and history of premature and improper removals and the fact that this history had prompted the firm to create its “Professional Responsibility Committee” (the “Committee”), which is comprised of four equity partners who are said to review for form and content every notice of removal filed by the firm. (Rec. doc. 53 at p. 6).

         Upon questioning by the Court, Ungarino advised that the Committee still exists today, identified its members and stated that it had, indeed, reviewed the Notice in this case. (Id. at p. 7). Ungarino was then asked by the Court whether the four equity partners on that Committee realized at the time the case was removed that there were material jurisdictional allegations missing from the Notice because there were LLCs involved as defendants in the case. Ungarino responded, “No. I had no knowledge as to any LLC or memberships - members that were missing.” (Id. at p. 7). When asked in a follow-up question whether he and the Committee knew at the time of removal that established Fifth Circuit precedent holds that the citizenship of an LLC for diversity purposes is determined by the citizenship of all of its members, Ungarino stated “Yes, Judge, we knew that.” (Id.).

         When the Court pressed Ungarino and Bordelon on why the firm removed the case without knowing the facts required to do so properly, it was met with two seemingly inconsistent statements. First, Ungarino insisted that his firm was asking for the information regarding members' citizenship “way in advance” from counsel for Poydras and they were not getting it - he even offered to submit emails and the firm's time sheets to prove they were “asking for the information and [] not getting it.” (Id. at pp. 10, 12). Then, however, in his very next statement to the Court, Ungarino stated: “Well, frankly, Judge, we were unaware that the LLC membership was a problem.” (Id.). Then, finally, Ungarino admitted that “…to be fair, Judge, let's face it, we were focusing on the individual, right?” (Id.).

         Taking these last two statements as possible admissions that the Committee was unaware of the necessity of alleging the identity and citizenship of the LLC members at the time of removal, despite Ungarino's assurances otherwise, the Court became concerned that Ungarino's earlier statements to the Court that the firm had been trying without success to obtain the necessary information from co-defense counsel were not true, i.e., why would they be asking for information they didn't know they needed? For that reason, the Court set the aforementioned Rule to Show Cause and ordered both U&E and counsel for Poydras LLC to separately produce for in camera inspection the following:

copies of all emails or other written communications that were exchanged between them and counsel for the Poydras LLC defendants in connection with the drafting of the original notice of removal and the proposed amended notice of removal, including all efforts to ascertain jurisdictional facts pertaining to the members of each LLC.

(Rec. doc. 48).

         Upon being told in open court that the foregoing Rule to Show Cause would be set, Ungarino asked that it be sealed and stated repeatedly that he believed it was unfair for the Court to issue the Rule before reviewing the aforementioned documents. (Rec. doc. 53 at pp. 19-21). The Court declined his request.

         The Court also deferred ruling on the merits of the Motion for Leave to Amend the Notice, at the suggestion of Plaintiffs' counsel, who argued that, should the Court's review of the aforementioned documents reveal that U&E had not actually requested the LLC members' citizenship information until after the motions to remand were filed, there may be additional grounds to deny Velocity's request to amend the Notice. (Id. at pp. 22-28).

         III. EVENTS FOLLOWING THE HEARING

         Later in the day on December 21, 2016, before the Rule to Show cause was entered into the record by the Clerk's office, the Court was copied on an email from the District Judge's Law Clerk to Ungarino and all counsel in the case that read as follows:

Dear Mr. Ungarino,
In response to your phone call today, I am informing you that the proper procedure of this court is for Judge North to first issue a ruling on the Rule to Show Cause on the Rule 11 Motion. Then, should you disagree with Judge North's ruling, you may appeal to Judge Zainey. At this point in the process, however, it would be premature for Judge Zainey to intervene. Please let me know if you have any questions.

(Rec. doc. 49)(emphasis added).

         Later that day, and shortly after the Minute Entry setting the Rule to Show Cause was entered in the record, Ungarino, apparently unaware the Minute Entry had been issued, replied to the aforementioned email:

I am requesting a status conference before a rule to show cause is issued. The emails with codef attys indicate that we requested that codef counsel on October 4 confirm the domicile of defendants. Codef Counsel signed the consent to remove subsequent to that email and the removal was filed. This is unfair. The emails should be reviewed before a rule to cause is issued.

(Id.)(emphasis in original).

         This Court took no action on these emails at the time except to have the Clerk's office enter them into the record.

         Owing primarily to the receipt of the aforementioned emails, on December 27, 2016, the Court issued an Order supplementing the scheduled Rule to Show Cause, directing that in their brief responding to the Rule, Ungarino, Bordelon and U&E specifically address the following issues and explain therein why they and/or their law firm should not be sanctioned under 28 U.S.C. §§1927 and 1447 and/or Federal Rule of Civil Procedure 11 in connection with them:

1. Whether Mr. Ungarino knew when he signed the original Notice of Removal (the “Notice”) that the notice did not contain sufficient jurisdictional facts as to the Poydras LLC defendants to support removal at that time.
2. Whether Mr. Ungarino or any attorney reviewing the proposed Notice knew that Fifth Circuit precedent required in this case that the Notice set forth the identity of the Poydras LLC members as well as their citizenship.
3. Whether Ungarino & Eckert actually inquired as to the identity and/or citizenship of the Poydras LLC members before filing the Notice.
4. Why Mr. Ungarino signed the Notice despite having “no personal knowledge of the citizenship of the co-defendants' clients” (Rec. doc. 47).
5. The explanation for and details concerning the apparent ex parte communication with the District Judge's staff concerning this case on December 21, 2016.

(Rec. doc. 51).

         IV. THE PARTIES' SUBMISSIONS IN ADVANCE OF THE HEARING ON THE RULE TO SHOW CAUSE

         A. The Poydras LLC Submission

         On January 3, 2017, counsel for Poydras LLC, Guyton Valdin, Jr. (“Valdin”), complied with the Court's order of December 21, 2016, providing the Court for in camera review numerous documents representing the written communications between his firm and U&E concerning removal issues, particularly the citizenship of Poydras LLC and its members. The Court's review of those documents revealed what the Court had suspected after the original hearing: not only did U&E fail to inquire about the Poydras LLC members' citizenship before it filed the Notice on October 5, 2016, it did not ask Valdin for that information for the first time until November 7, 2016 - after both Motions to Remand had been filed by Plaintiffs. (Rec. doc. 58-3). As will be discussed below, the documents submitted by U&E with its memorandum confirmed this fact.

         B. Ungarino & Eckert's Submission

         On January 6, 2017, U&E, through counsel, submitted its brief in connection with the Rule to Show Cause. (Rec. doc. 55). Simultaneously, and as ordered, U&E submitted, for in camera review, the documents it relied upon in drafting both the original and amended Notices of Removal. The Court's in camera review of the documents submitted by both the Poydras Defendants and U&E reveal them to be virtually identical and the Court is satisfied it has received everything it ordered to be produced. As noted above, the U&E submission confirms that U&E first requested the Poydras LLC membership information after Plaintiffs had filed their motions for remand.

         Turning to U&E's arguments in brief against the imposition of sanctions, they can be fairly summarized with this language from the Introduction to their brief:

Respondents recognize and admit they should have properly listed the citizenship of Poydras Center, LLC and Poydras Center Manager, Inc. in the original notice of removal or, in the alternative, should have amended the notice as soon as possible after removal to cure the defect. While the removal was ultimately proper and complete diversity exists, Respondents further recognize and admit their failure caused unnecessary time and expense to be expended by plaintiffs' counsel and the Court and sincerely apologize to all involved for this wasted time and effort. While Respondents accept full responsibility for their actions ...

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