I am going to reveal my true inner-nerd here so please keep it on the down low, but this is pretty hilarious. It’s a librarian’s blog–no that’s not the funny part—wait—really. It’s a librarian’s blog post on stupid e-mail disclaimers! Any one who e-mails regally with lawyers, has seen so many of these you don’t even notice them anymore (real effective disclaimer) but this one sums up some of the more hilarious ones I’ve read in a while . . .or maybe it’s just the liberation commentary to each one that does it? Either way, I am thankful for humorous librarians this Turkey Day in the year Twenty Fourteen. Enjoy and thank a librarian everyday!
Since the last post already gave away the end of the story, I thought I’d go back to the beginning and try to fill the blanks. As you may recall, I was describing a win I had recently that was somewhat surprising. My client had sued his former employer and business partner and won via summary judgment. Really isn’t anything too unusual or exciting about that, except the way the judge crafted the relief in the Order exactly the way I wanted–and then some!
So, first I’ll let the court explain the basic facts for the employment claim (although my client wanted me to use the real names, they have been changed to protect the guilty):
Fisher was employed by Mountain Const. Inc. as the site superintendent for a restaurant Project from October 8, 2012 through February 5, 2013 at a rate of $1,750 per week. Fisher was not compensated for seven weeks and two days of work, for which Fischer is owed $12,950.00. Mountain Const. Inc. is liable for this debt as Fisher’s employer. Fisher also claims that Mountain Const. Inc.’s owner, TJ, should be held personally liable by piercing the corporate veil of Mountain Const. Inc.
Knowing that the company was defunct with no assets, and after hearing numerous threats of bankruptcy, I thought I would take a long shot and try to hold the owner personally liable for the unpaid wages. The main reason I tried was because of how often TJ kept throwing around the “B” word (Bankruptcy) throughout the case–including during his deposition–smugly. I knew it was less likely for TJ to file bankruptcy personally, at least not until absolutely necessary. We proved TJ took money from the Project and used it personally to buy a house and flip it. It is much easier to buy real estate if you don’t have a bankruptcy on your credit report.
After Fisher was fired, he provided the statutorily required written demand (Minn.Stat. § 181.13(a)) on his employer. After 24 hours passed, with his wages remaining unpaid, the statutory penalty of an extra day’s pay was added on for each day he went unpaid (up to 15 days). The Court also ordered the employer to pay for Fischer’s attorney’s fees and expenses (Minn.Stat. § 181.171). Piece of advice: Pay your employees on time in Minnesota.
Before and during the case, Fisher was accused of being the reason there was no profit from the Project and told he would never be paid. In essence, he was accused of being a traitor due to working with the General Contractor to finish the Project (TJ walked off the job); accused of being a forger for trying, unsuccessfully, to sign his own name to a lien waiver for work that was paid for; and a conspirator, for helping turn documents in so the Project could be closed out and everyone could be paid–even TJ and Mountain Const. Inc.! For doing all that he was fired and told he didn’t deserve to be paid for over two weeks of work.
As the litigation progressed, we could tell we would not be getting any useful documents from TJ or Mountain Const. Inc. We decided to change course and serve subpoenas on the company’s credit union and see what we could uncover. My client had done some (a lot) of the bookkeeping for the Project but TJ said he had not completed a final accounting yet because he was broke. With the subpoenas, Fisher’s understanding of the Project’s finances and some help from the General Contractor, we were able to piece together a puzzle that only formed one picture when the pieces fit and locked together: TJ took all the money from the Project and the business’s bank accounts and kept it for himself.
Here’s what the Court did with that:
A. The Victoria-Elevator Test Favors Piercing the Corporate Veil
In the usual case, an individual shareholder is not liable for the debts and obligations of the corporation. To
determine the appropriateness of disregarding the corporate entity in this case, however, the Court applies a two-pronged test considering: (1) whether TJ has sufficiently established MCI as a separate entity and; (2) whether the failure to impose personal liability on TJ would work an injustice or be fundamentally unfair to Fisher. Victoria Elevator Co. of Minneapolis v. Meriden Grain Co., Inc., 283 N.W.2d 509, 512 (Minn. 1979). Here, “courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.” Id. at 512 (citing DeWitt Truck Brokers, Inc. v. W. Ray Flemming
Fruit Co., 540 F.2d 681, 684-87 (4th Cir. 1976)). That can be determined by an analysis of the following factors:
insufficient capitalization for purposes of corporate undertaking, failure to observe corporate formalities, nonpayment of dividends, insolvency of debtor corporation at time of transaction in question, siphoning of funds by dominant shareholder, nonfunctioning of other officers and directors, absence of corporate records, and existence of corporation as merely facade for individual dealings.
Id. Not all but “a number of” these factors need to be present to satisfy the first prong of this test.
The Court applies these factors to our case’s facts and here is the lesson that can be learned from this. If you want to maintain the liability protection you gain from doing business as a corporation or a limited liability company (LLC), you need to follow corporate formalities, keep your business and personal finances separated and keep current and accurate records. And pay your employees, your taxes and don’t lie in a deposition.
In this case TJ did not treat MCI as a separate entity and failed to distinguish between property owned by him and property owned by the corporation. The Court has no evidence that TJ observed any of the corporate formalities necessary to distinguish MCI as an entity separate from himself. TJ was the sole shareholder of MCI. He admits that no taxes have been paid by the corporation and, according to him, he no longer possesses the corporation’s financial documents.
TJ claims that he did not pay himself a regular salary as CEO of MCI. He treated MCI’s bank account, however, as his personal account. Depo. at 42. He wrote checks from MCI’s account at the Credit Union and deposited them into his personal account at his Bank without recording transactions. The amounts of these transactions varied from $6,000 to $40,000. TJ also claims that he cannot remember why he transferred that money. Id.
*****[numerous self serving transactions deleted]****
TJ claims to not remember any of the above transactions or their purpose. Furthermore, the only records of the transactions were kept by the bank and credit union. The Court can only conclude that TJ was using MCI to support himself and his other businesses and investments. Based upon the evidence in this case, TJ did not distinguish between his own assets and those of MCI.
Under the first prong of the Victoria-Elevator test, TJ’s failure to observe corporate formalities, the absence of corporate records, and the evidence that the existence of the corporation is merely a facade for individual dealings, all support the piercing of MCI’s corporate veil.
Stay tuned. The next post will address the second prong’s analysis of the injustice and unfairness of allowing the corporate entity to shield the owner from liability. Now isn’t legal geeking fun! Oh yeah, and please pay your employees and taxes.
Following is my research report of actual case quotes/snippets that I found interesting (for some reason or another) while I was researching the Question: Can you be sanctioned for bringing a frivolous or otherwise improper Rule 11 Motion for Sanctions?
Answered: Yes and you don’t even need to provide the 21-day safe-harbor period! See Fed.R.Civ.P. 11 (c)(2)(“If warranted, the court may award to the prevailing party the reasonable expenses, including attorney’s fees, incurred for the motion”) and Minn.R.Civ.P. 11.03 (a)(“If warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorney fees incurred in presenting or opposing the motion.”).
- A Rule 11 violation is a serious thing, and “an accusation of such wrongdoing is equally serious.” Draper & Kramer, Inc. v. Baskin-Robbins, Inc., 690 F. Supp. 728, 732 (N.D. Ill. 1988).
- The imposition of Rule 11 sanctions should not be imposed so as to “ ‘chill an attorney’s enthusiasm or creativity in pursuing factual or legal theories [.]’ ” Robinson Rubber Prod. Co., Inc. v. Hennepin County, Minn., 12 F. Supp. 2d 975, 981 (D. Minn. 1998).
- When a Rule 11 motion itself is not well grounded in fact or law, or is filed for an improper purpose, the court may sanction the moving party. Safe-Strap Co., Inc. v. Koala Corp., 270 F. Supp. 2d 407 (S.D.N.Y.2003).
- The Court may impose sanctions for a Rule 11 motion that was “not well-grounded in fact,” and was “filed solely as a litigation tactic,” having “the effect of unnecessarily confusing consideration of the real issues.” Judin v. U.S., 34 Fed. Cl. 483, 493 (Fed. Cl. 1995).
- “Counsel’s reliance on Gaiardo v. Ethyl Corp., 835 F.2d 479, 483 (3d Cir.1987) to rationalize his performance as a good faith effort to challenge existing law is to no avail. He did not even mention the Gordon case . . .” Borowski v. DePuy, a Div. of Boehringer Mannheim Co., 850 F.2d 297, 304-05 (7th Cir. 1988).
- “His conduct throughout the entire case demonstrated the “ostrich-like tactic of pretending that potentially dispositive authority against [his] contention does not exist,” precisely the type of behavior that would justify imposing Rule 11 sanctions.” Id.
- “The district court was correct in sanctioning plaintiff, who should not be permitted to rely on the defendants to do the research either to make his case or expose its fallacies.” Id.
- “Rule 11 is not a toy. A lawyer who transgresses the rule abuses the special role our legal system has entrusted to him.” Draper & Kramer, Inc. v. Baskin-Robbins, Inc., 690 F. Supp. 728, 732 (N.D. Ill. 1988). “He can suffer severe financial sanctions and, if his misconduct persists, he can find himself before a disciplinary commission. See, e.g., Model Rule of Professional Responsibility 3.1 (“A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous.”). In short, a Rule 11 violation is a serious thing, and an accusation of such wrongdoing is equally serious.” Id.
New amendments have been proposed again to the Federal Rules of Civil Procedure. Once again, the proposals have the goal of limiting discovery and the burden and expense that goes along with it. As the Judicial Conference described the recommendations from the Advisory Committee on the Federal Rules of Civil Procedure that were sent to the US Supreme Court this week:
The proposed changes seek to reduce litigation costs and delays by encouraging early case management by judges, increased cooperation among the parties, and the proportional use of discovery based on the needs of the case.
The most interesting aspect for me is the increased involvement of Judges early in the discovery process to try and keep it under control. I have not found a Judge yet that wants to be more involved with the discovery process in civil cases.
I think it may be what is needed (or at least should be tried) to reign in the out of control and overly broad discovery process that results in a a lot of time and money being consumed while providing information that is not even colorably relevant to a case.
But I have my doubts that after 4 decades of trying to alter discovery under the procedural rules that this will have much of an impact even if it is adopted by the SCOTUS and Congress allows the amendments to the rules. I hope so, but we’ll have to wait and see . . . Even if all goes as planned, the amendments won’t go into effect until December of 2015.
Just the facts please . . .
So, did you called your attorney? No, not yet? But you will? Okay. I guess, I’ll answer a few questions for you first. But only about what your attorney will need from you when you call? You need to speak to your own attorney and not just read this on some stupid blog written by someone you never met and do not even know is a real attorney. I’ll be using a lot of usuallys, generallys and ordinarilys and not many specificallys, totallys or exclusivelys.
Continuing with my last post, most attorneys will usually want details about the Subpoena when you call. When were you served? How were you served? Who is it from? What are you asked to produce? Did you know this case is going on? Do you know these people? Do you know anything about this? What court has this case? Why do they want your records? How are your records related? What did you do here? Are you sure?
. . . and the documents too.
Ordinarily, an attorney will want to see a copy of the actual Subpoena itself along with any documents that came with it or were attached to it. There are a number of technical requirements that the Subpoena needs to comply with on it’s face, that must be included with it and how it must be delivered for it to be valid and enforceable. Plus, your attorney will want to know who served it, the parties’ names as listed in the caption and who their attorneys are, where and how the production is taking place, if it is in federal or state court, the specific language used to describe what you are supposed to produce and other things. Since most of this information comes on or with the Subpoena, I always want to see a all of it as soon as possible.
Under What Authority?
Rule 45 of the Federal and Minnesota Rules of Civil Procedure govern Subpoenas in civil lawsuits. Minn.R.Civ.P. 45.01 (2014); Fed.R.Civ.P. 45 (2014). Although already alike, after Minnesota amended its state court version of Rule 45 in 2006 the state rule is now almost a mirror image of the Federal version of Rule 45. They are similar enough to make some general observations that usually are applicable to both Rules.
The generalities begin with an attorney being an officer of the court in both forums. As such, an attorney has “Subpoena power” and usually does not need any separate authorization by a judge to use and serve a Subpoena. This power is used to compel people and businesses to provide information needed and related to a lawsuit, whether it is testimony, documentary or in some other tangible form. If you fail or refuse to comply with any type of Subpoena, a court can find you in contempt of court and impose typical contempt sanctions (fines and time in jail to obtain your compliance).
Subpoena Duces Tecum
The type of Subpoena in the post below is formally called a Subpoena Duces Tecum (meaning bring it with you or be penalized in Latin). It requires you to provide documents or other physical items, including electronic data created by and stored on a computer’s hard drive or in its memory.
In Minnesota, a Subpoena Duces Tecum usually does not involve providing testimony, but it can. You have to be certain so it is best not to rely on any ambiguous cover letters that were served with it. You need to read and comply with the actual wording in the Subpoena itself.
Based on the circumstances described in my previous post, a number of things happened with this Subpoena that should be considered.
1. Properly Served?
The first question that always should be asked is if service of the Subpoena was proper. A Subpoena under Rule 45 has to be personally served to be effective. To be proper, there are service specifics as to who may serve the Subpoena, where and when it may be served, who it has to be served on and how it is to be served, among other requirements. Make sure your attorney knows how you got the Subpoena.
2. Right Person?
This Subpoena requires records be produced that belong to the company. As long as your business is a corporation or LLC, the Subpoena should not name a specific person and will usually name the “Records Custodian/Custodian of Records.” This usually means whoever has access to the business’s records, is responsible for maintaining them and can certify to the court (and everyone else) the records produced are what was asked for and have not been improperly altered.
3. Witness Fees?
The attorney that served the Subpoena has to include a witness fee of $20.00 per day in Minnesota state court cases and $40.00 for federal cases. If this is not included with the Subpoena when served, the Subpoena may be considered invalid. Besides the generous per diem witness fee, the party serving the Subpoena is required to reimburse you for round trip mileage (28 cents and 55.5 cents respectively in state and federal cases) to the scheduled event (trial or deposition) from your home or workplace.
If you are not a voluntary participant in the case (or employed by one) and it involves your business or profession, you are to be compensated for your time complying with a Subpoena Duces Tecum. If the Subpoena fails to address compensation your attorney can object or bring a motion, depending on the circumstances, burden and costs involved. Arrangements to reasonably compensate you for the time required to comply with it should be addressed before compliance. However, being required to respond to a single Subpoena Duces Tecum personally and incurring nominal expenses is not presumed to be compensable under the Rule. It’s like serving as a juror to a degree: a civic duty. Protecting people who have nothing to do with the case from unreasonable burdens is preferred but not required.
Rule 45 requires reasonable notice. But the rule does not set a specific time limit. Typically, ten days is enough, but why is reasonable may be shorter or longer depending on the circumstances of the case. A potential trap for the unwary is that a non-party has up to 14 days to object to the Subpoena. Because any objections must be asserted before the time set for compliance under the Subpoena, you cannot hope to take advantage of the full 14 days if the Subpoena requires a shorter time to comply. It is a good idea to assert any objections as soon as they can be determined and not wait until the last minute, or worse, think you have 14 days as stated in the Rule if the testimony or documents requested are due sooner.
6. Reasons to Object or Quash?
Subpoenas Duces Tecum may be opposed on grounds of privilege, undue burden, relevance, reasonableness, oppression and for other good cause. But keep in mind the court alone makes the final determination as to what constitutes any of these factors and what weight each one is to be given. Just like beauty is in the eye of the beholder, one person’s relevance may be extraneous to another. As a result, you should always proceed with an abundance of caution and try to comply (and document your efforts). After all, when contempt penalties are possible it is always better to be safe rather than sorry.
Although Rule 45 does provide some protections to non-parties, few are required and strict compliance will always be expected. The best way to deal with the unfortunate burden of being served with a Subpoena Duces Tecum is to act promptly and thoroughly with the guidance of an attorney. After all, there may come a day when you need to obtain information for a lawsuit and serving a Subpoena Duces Tecum on an unrelated third party may be the only way to obtain it.
Now will you call your attorney?
Next up: Conclusion: The Confidentiality Issues . . .
Not the Best Way to Start Your Week(Monday Morning 8:07 a.m.)
our receptionist walks in and hands you an envelope. As you open it up, you recognize the format and see the word SUBPOENA printed on the first page. The receptionist says someone just handed it to her and left . . . didn’t say a word. You know you have no lawsuits going on. The last one settled last month. You paid the lawyer’s invoice. That pain is still vivid. It’ll be a hundred bucks just to call him about this! And then he’ll answer every question with a question. Twist it around and into a question.
Duces Tecum(Monday Morning 8:12 a.m.)
Scanning the crisp paper quickly, your glasses slip down your nose. You focus on the names. Bold. Black. Names. Don’t know who they are. Looking it over closer, you see something is scheduled? A deposition? Not again! Oh, the custodian‘s deposition? Must mean the janitor. Isn’t “maintenance man” more correct? Luke? Yeah, Luke.Wonder what he did? Custodian! He cleans and maintains – He doesn’t custody! The stark letters form words that look like English, just not the everyday kind of English. Subpoena Duces Tecum. Must be some special subpoena.
Duces Tecum? D-u-c-e-s Tecum. Duces T-e-c-u-m. D-u-c-e-s- T-e-c-u-m?
(Monday Morning 8:15 a.m.)
Oh, wait. The maintenance guy’s name is Duke. Not Luke! Duke Tayler . . . or something or other? Dukes Tatum? Deuces Takem? Ducks Teacup? You toss the envelope aside—not you this time.When Duke gets in you must tell him. Poor guy. After staring at it for far too long, you give in and pick up the envelope again. You pull the papers out and iron them flat. Date and time. Only a week away. Hope Duke can find a lawyer by then.
Records Recalled(Monday Morning 8:17 a.m.)
Flipping the page, there’s a description of what’s wanted. Sounds like a project you did a year ago. Sounds the same. Maybe longer than a year? Why would the janitor have a project file like this? Moonlighting? Stealing company secrets? Yeah right. It sure is specific. Horowitz & Associates. Horowitz? Horowitz? The Horowitz file! “To Custodian of Records: You are commanded to appear with all documents in your possession and under your control, relating in any way to the transaction between . . . .” Custodian of Records? Of Records! It wasn’t the janitor. It’s like custody. The Custodian of The Records! It’s not Duke. It’s you. Again. Damn it. Alright. You get it now. But where would that file be? And a week? Only a week? And if not? Then what? Duces Tecum!
Confidences Collide(Monday Morning 8:20 a.m.)
The way the subpoena is worded it seems like they want documents that are not related to the project too. Some documents listed are full of confidential information. Your confidential information. No one sees that except you and some of the senior managers. And only when they need to. Need-to-know basis only. Some of it i s the client’s financial records. You can’t just hand that over . . . Can you? Do you have to? Maybe you should call Horowitz first? Is that legal? Duces Tecum?
Publicly Proprietary(Monday Morning 8:22 a.m.)
Oh boy. This covers more than finances. It covers Horowitz’ processes too. Didn’t you sign something saying you would not disclose that information? And if you did there’d be hell to pay? Horowitz’ competitors would love to see this stuff. Proprietary systems and designs. The procedures and process. The underlying data. Trade secrets. Hell, your competitor’s would like to see your stuff in that file too. It’s not like Horowitz’ records, but . . . If it’s a lawsuit it’s public, right? Anyone can see it? That can’t be allowed. Can it? They can’t just do this! Or can they? Damn lawyers.
Disrupted(Monday Morning 8:37 a.m.)
Last time you spoke to Horowitz was the day the deal closed. It was fourteen-sixteen-some months ago. You don’t know if you can, or should, or want to call him. Just look through the files first. Figure out what’s really in there. It might not be nothing. Maybe you’re the wrong custodian and don’t have the right records? Maybe it’s a mistake? Know soon enough. Duke’s on his way out to the off-site storage. But it will still take time to find the file. You could just call the lawyer who signed the Subpoena? Won’t have to pay for that. Can you trust him? What if he tricks you? Not good. Dunce To-sum? It’s already disruptive and may jeopardize your relationship with a good client. This is the last thing you want to deal with right now. What do they think gives them a right to do this? You did nothing wrong. Horowitz? Maybe. But the deal is closed. Done. Over with. Maybe you should have returned the original file to him? Maybe that should be the new policy. And who’s paying for this wasted time? Duke doesn’t work for free! And he bills his mileage at the IRS rate. Twenty five miles to the gallon at fifty six cents per mile? Gas ain’t $14.00 a gallon! And he takes the long way back every time, too.
Instruct and Define(Monday Morning 8:41 a.m.)
As you’re looking for your good pen on your desk, you notice a page sticking out from the envelope the subpoena came in. Must’ve missed it. Sticking out from the envelope is the stapled corner of another document. Pulling it out while unfolding it, you read the title, “Schedule A—Instructions and Definitions.” Hmm? They already asked for the whole damn file, what more could they want? The boxed up file is all you got. Wondering what more there might be, you read Schedule A’s Instructions and Definitions. The everyday words, “Instructions and Definitions” now sound foreboding.
Every Stupid Item(Monday Morning 8:44 a.m.)
With your stomach already burning it slowly starts to churn. You look at what is on the last, and almost overlooked, pages. You read through the Instructions and Definitions. Twice. To be certain. Okay, they want every piece of paper related to the file. I get it! But gawd. For real? There is no way! For the third time, you slowly read the paragraph again (hoping it may have changed):
. . . all electronically stored information (ESI). You have an obligation to keep all potentially relevant internal and external emails sent or received. Email must be preserved in electronic format, regardless of whether hard copies of the information exist.
All devices with either magnetic core or solid state random access memories should be immediately placed in a litigation hold and preserved until further notice. Remove all backup drives, tapes or other media out of regular rotation. Due to its format, electronic information is easily deleted, modified or corrupted (i.e., by data compression, disk de-fragmentation, or optimization routines). ESI must be produced to retain the associated metadata. When produced, it should be in native format and include single page TIFF files, Bates Numbered with OPT and DAT load files retaining all associated file.
(Monday Morning 8:53 a.m.) Your computers? Okay. You get it. You’ll call the IT guy too! What the hell is TIFF? And OPT DAT? Sounds like some pop star or a military acronym used only during wartime. What is the IT guy’s number filed under? Computer . . . Something … Tech … Something …Team? He’ll know what to do. He’s so damn expensive he better know what to do. Not as expensive as the lawyer. But sometimes the IT guy makes things worse. Way worse. He does make them better, but first it’s worse. Actually, the lawyer does that too. What is it with . . . oh no. You haven’t paid the IT guy’s invoice since . . . shoot! It’s at least ninety days past due. Is he going to even take your call?
So many questions?
(Monday Morning 8:56 a.m.)
Where do you even start? What do you have to do and by when? What happens if you don’t do anything or don’t do it on time? Do you have any rights? Can you get more time? Do you really have to give some random attorney access to your company’s trade secrets? To your client’s secrets too? It’s proprietary and valuable. He’ll fire you. Can your client sue you if you comply and hand over his trade secrets? What if you signed an NDA? Is this all public information now? Can all of our competitors can just go take a look and see it? And access to your servers? Are the computers going to be down? How are you supposed to get anything done and meet deadlines? Should you even have your employees come into work? Do you just send everyone home for the next week? Can you even stay open at all? And who is paying for all this down time? And the IT guy? And the lawyer? And the copying? And Duke’s mileage? Do you have any options? How much of this burden do you have to bear ? Do you have any rights at all?
What to do?(Monday Morning 9:01 a.m.)
The first thing you need to do is take a deep breath. Then call your attorney. And not too deep a breath. You need to call your attorney now. You have rights. You have options. You won’t be ruined by this. But the Rules are particular. You have to know what they are and how they work. The Rules authorizing subpoenas also protect you. But you need to know how to use them. You have no time to dawdle. Call. Your. Attorney. Now.
To be continued . . .
Ring, Ring, “Law Office.”
Hello. Yeah, uh, this is probably a stupid question, but, um, I got some legal papers here, someone gave ’em to me, but, they got my name on there, but, there’s no court file number listed. It’s just blank. So, like, this is fake, right? I mean, it’s just another scam, or fraud, or something. But it ain’t real with no court number on there, is it?
A common question from a potential client not realizing they were just served with a real lawsuit in Minnesota state court.
Yeah, I gotta question for ya. My client was served with papers down here from some lawyer in Minnesota. But they haven’t filed it, see?. So, we figure, the attorney is just trying to scare us. Bluffing. I’m not planning on answering it, ‘cause, ya know, there isn’t a file number to file it with. Does this sound right to you? They’re just hoping we’ll pay and don’t really wanna litigate, ya know?
–A common question from an out of state lawyer with a client being sued in Minnesota state court.
(Court File No.: __________)
People are always bewildered to hear in Minnesota we can sue someone without filing anything with the state court. All it takes is for an attorney to draft, sign and serve a summons on a defendant (with a complaint) to start a lawsuit.
It can be confusing. If you don’t think it is real without a court file number printed on it, think again, before it becomes a default judgment (with a Court File Number and dollar amount on it). And don’t bother calling the court. There will not be a record of it there. The court will have no idea A lawsuit was commenced, because the lawsuit began when the summons was served and the court was not involved. This is commonly known as “hip pocket service,” despite some legal commentators calling it “hip pocket filing.”
Minn. R. Civ. P. 3.01(a) and its Origins
Under Rule 3.01(a) of the Minnesota Rules of Civil Procedure, “A civil action is commenced against each defendant . . . when the summons is served.” Compare that to what Rule 3 of the Federal Rules of Civil Procedure provides: “A civil action is commenced by filing with the court.” A small difference in wording, with a large impact on when a lawsuit begins.
Our current Rule 3 was a statute in Minnesota as early as 1866, when actions at law and equity were merged so that only one procedural type of civil action existed. Minn. Gen. Stat. ch. 66 (1866)(Minn. Stat. Ann. § 540.01 superseded by Rules); and Bond v. Pennsylvania R. Co., 124 Minn. 195, 144 N.W. 942 (1914)(discussing this history).
Minnesota’s statutes progeny began in 1851 when we were still a territory and continued after Minnesota became the 32nd state in 1858. Id. In the 1866 version of Minnesota’s Rule 3, it was spread out among two sections. See Section 13 and 14, c. 66, G. S. 1866. The two sections were combined into one through the 1905 revisions to Minnesota’s statutes (Revised Laws). See Section 4102, R. L. 1905.
Can’t Find My Pocket?
I searched but could not find “hip pocket service” or “hip pocket filing” used by a Minnesota appellate court, although it is used by the advisory committee in comments to Rule 12 of the General Rules of Practice in 2009. Suffice it to say the procedure has been around a long time. I will leave the exact origin of the affectionately used slang term a mystery for now.
Only North and South Dakota have the same procedure as Minnesota. In some other states you can serve a summons before filing, but the case must be filed shortly after service is complete (from a little over a week to a few months later). The majority of states follow the federal rule and require you to file (and pay the fee) to start a lawsuit.
Effect of Not Filing
Pocket service can save you from immediately paying the filing fee for a lawsuit. This is nothing to scuff at with the filing fees for a civil action at about $325.00, unless you want a jury, then add on another $102.00. Other benefits are significant and be attractive for many cases.
After service (about $60 to $100), you have an active lawsuit not under court supervision and no court-imposed deadlines apply, but you can engage in discovery and the case can proceed with all of the civil procedure rules applying. Not filing can be beneficial in settling cases early with less expense. Sometimes it can be abused by a plaintiff with a weak case looking for a nuisance value settlement. But still not without a counterbalance: A defendant can file the case at anytime too.. As defense counsel, I’ve filed first many times to call a plaintiff’s apparent bluff.
Since the case is not filed, there is no way to count how many lawsuits are actually are pending. If a suit is timely served, it could have remained pending indefinitely. In 2011, it was estimated (guestimated) by collection attorneys (usually suing people for credit card debt) that 50,000 un-filed consumer credit cases had been served in the state while the Great Recession was ongoing.
That was more than twice as many as the collection law firms had filed. When New York ended hip pocket filing in the early ‘90s, it saw court filings swell by about 20%. The number of un-filed cases in Minnesota is unknown a
nd unknowable, but it’s a safe bet there are more than a few and maybe a lot more.
A great benefit of hip pocket service is it allows a lawsuit to be filed without being publicly disclosed. I worked on one case where it was about 6-7 years from the time it was served and neither party had any desire to file it. They were not interested in a public airing of their grievance.
They were both professionals and one of them had transmitted a loathsome disease to the other. They each had claims accusing one another of spreading the pre-existing condition to each other. Maybe it was a mutual infection? The case sat at a stalemate and lingered. I tried to find a way as a law clerk to resolve it, but could not dismiss it without filing it with the court for the whole world to see. That was not acceptable. As far as I know, that case may still be out there pending, and has been for about 20 years by now.
2013 Amendments to Rules 3.01 & 5.04
Effective July 1, 2013, Rule 3.01 was amended and now requires all cases to be filed within one year after they were served. Rule 5.04 deems a case dismissed with prejudice (the case over and can never be started again) if is not filed within a year. Perhaps as a nod to privacy, the parties can waive the one year limit and keep the case active indefinitely.
For all of the older pending cases, the clock began to run on the effective date and the one year limit is up July 1, 2014. If not filed, your case will be automatically dismissed and you can never bring the same claim again. Great news for defendants, not so much for the tardy or absent minded plaintiff.
An Exception to Every Rule
If you have a real good reason, act promptly, have a legitimate claim and it won’t be too unfair to the person being sued, Minn. R. Civ. P. 60 may work to reopen a dismissed case. But don’t count on Rule 60 saving the case if you were negligent, inexcusably tardy, have a questionable case and/or the defendant will be at a disadvantage. It should be used only when these factors are present.
Time to Review
It will be interesting to see how many old cases are filed in June, especially how many are filed the last week of the month. I am sure we will hear about the numbers once they are in and I may post them here after I do. In the meantime, make sure you review all of your cases served before July 1, 2013 and get them filed ASAP or keep your head low and hope the clock runs out on any claims outstanding and un-filed. Right now, I need to go inventory my older files.
What is this? A Pol with a real apology? He’s reading it, but it sounds heartfelt. I giveth thee the benefit of my doubt, Charlie. You picked the wrong guy to swipe a song from, but hey, at least you have good taste!
I love the creative settlement term that seems to fit the offense. If you used the song on YouTube without licensing it, then you should apologize on YouTube for doing so. Seems apt.
What bothers me is our “lawmakers” either: 1) Don’t know much about the law (less than a typical teenager in this case); 2) Don’t care what the law is if it gets in their way; 3) Don’t believe it applies to them; or/and 4) Are so dumb they don’t think they’ll get caught using a song publicly for a political campaign. All of the above?
This one was cool. I was litigation counsel at the district court level in an adversary proceeding challenging a Chapter 7 case due to fraud in US Bankruptcy Court in the Minnesota District. For evidence reasons (i.e. lacking), we did not move to amend the Adversary Complaint until less than a week (5 days) before trial. The claim we intended to add would alter the legal standard we needed to prove (used the loan proceeds to pay a tax debt under 11 U.S.C. § 523(a)(14)) to prevail and have the debt exempt from discharge. It was short notice and on the eve of trial, but the amendment would not have involved any delay or further discovery. So I said.
We appealed on a complex bankruptcy ground (debt found not exempt under 11 U.S.C. § 523(a)(2)(A) or (B)) to the 8th Circuit’s Bankruptcy Appellate Panel (BAP) but to no avail (clear error standard with de novo review). I insisted on raising the simpler, procedural error claim the Rule 15 motion to amend was wrongfully denied (abuse of discretion standard though). As the appellate court said in the beginning of the Opinion, with an abuse of discretion standard they had to be left with a, “definite and firm conviction that the bankruptcy court committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors.” A high bar to meet.
In denying the motion to amend before trial, the Judge did not mince words and it always sucks to read words like that about your conduct. As the BAP, citing the order denying the motion for leave to amend so it may live on forever provided in part:
None of these factual or legal issues are necessarily obvious and it would be unfair on the literal verge of trial to require the defendant to defend that claim. The plaintiff either intentionally or negligently failed to plead this cause of action originally or anytime prior to trial and it would be inequitable to allow her to do [so] (sic) now.
I never did understand why anyone would have intentionally left out the claim that wins in the end. But by the time the trial was over, it was obvious that if we could have amended the pleading and added the tax-related claim, we would have won. Hence, the necessity of the appeal.
After quoting the stinging rebuke in the trial court’s order, the Appellate Panel shot right back, “We take exception to several of these points.” After that, the BAP went through the analysis they thought should apply.
They found the fact the debtor withheld discovery so we didn’t get the evidence needed to assert the claim until late in the game (and brought the motion the same day–5 days before trial) weighed in our favor. It was a fairly straightforward claim (for bankruptcy cases), that as usual the”§ 523(a)(1) claims turn on a simple determination of whether the tax debt paid arose from a tax year for which a return was due after three years before the date of the filing of a debtor’s bankruptcy petition.” If you followed that, go to law school.
The appellate court also found the amendment would not have resulted in unfairness or inequity to the Debtor, especially considering he was partly responsible for the delay in filing the motion to amend since he didn’t produce a check to the I.R.S. until well after it was due. And they were worried the debtor would get screwed?
But to top things off, the Appeal concludes the analysis with:
Finally, from a practical standpoint, it would have been a simple (and fair) matter to continue the trial to permit the Debtor to adequately prepare a defense to the § 523(a)(14) claim in light of the facts that this matter proceeded to trial less than five months after the complaint was filed, no previous continuances had been sought, and the only witnesses called to testify at the trial were Peterson and the Debtor.
In the end, the wise appellate panel of Judges decided a reversal of the order denying the motion for leave to amend was what lady justice said had to be done. Discretion was abused. The case was remanded back to the bankruptcy court and where we waited for a new trial date to be set.
Instead of getting a date, the Trial Judge promptly reversed himself. By applying the same facts he already found at the trial to the new claim (technically not even plead out yet) he entered judgment in our client’s favor and the debt was excepted from discharge. It was nice to win. And I, for one, don’t mind winning when no one is looking since who else really understands what went on anyway unless they are directly involved. But the written opinion will live on!
There is a lot to be said about a truly efficient, no-nonsense Judge!