United States District Court, E.D. Michigan, Northern Division
ORDER GRANTING PLAINTIFF'S MOTION FOR SANCTIONS
AND DIRECTING FILING
L. LUDINGTON United States District Judge.
October 15, 2014, Plaintiff Craig Lundsted filed this action
against Defendants JRV Holdings, LLC, and Roosen Varchetti
& Olivier, PLLC. ECF No 1. In his complaint, Lundsted
alleged that Defendants violated the Fair Debt Collection
Practices Act (“FDPCA”) and the Truth in Lending
Act (“TILA”). Id. On April 24, 2015,
Lundsted filed a notice that he had accepted Defendants'
offer of judgment. ECF No. 22. The parties agreed that
Lundsted was entitled to a judgment for $1, 000.00 in
statutory damages, exclusive of reasonable attorney fees and
costs. Id. Defendants' offer of judgment
provided for “judgment to be entered against [the
Defendants] and in favor of Plaintiff in the amount of $1000,
plus a reasonable attorney fee, costs and interests, if any,
to be determined by the court. This offer is made without
regard to and does not impact JRV's rights to set-off the
judgment it holds against Plaintiff.” Id.
Defendants had obtained a prior judgment in state court of
$11, 548.68 against Lundsted on January 29, 2014.
See Request and Order to Seize Property, ECF No. 48,
Ex. A. On April 24, 2015, Lundsted filed a notice of
acceptance of Defendants' offer of judgment. ECF No. 24.
On August 31, 2015, the Court entered a consent judgment of
$1, 000.00 in favor of Lundsted, not including attorney fees.
ECF No. 26. That consent judgment provided that a motion for
attorney fees and a bill of costs was to be furnished by
Plaintiff within twenty-one days of judgment, but did not
include the set off language quoted above.
September 1, 2015, Defendants filed a motion to vacate the
consent judgment, arguing that because the consent judgment
did not include the language retaining the right of setoff,
Defendants had not agreed to its terms. ECF No. 27. On
November 30, 2015, the parties attended a status conference
with the Court. ECF No. 35. At the conference, the parties
agreed that the right of setoff applied to the amount of the
$1, 000 judgment but disputed whether the attorney fees that
Plaintiff was entitled to recover could be set off against
Defendants' state court judgment. Accordingly, the Court
ordered briefing on that issue. On April 27, 2016, the Court
entered an opinion which found that the state court judgment
could be set off against the $1, 000.00 statutory judgment,
but not against the attorney fees awarded in the federal
case. ECF No. 47. The Court further ordered Defendants to
“compensate Plaintiff Craig Lundsted $11, 663.63 for
costs and fees incurred” in the case. Id. at
concluding that Lundsted's award of reasonable attorney
fees was not subject to setoff against Defendants' state
court judgment, the Court mentioned several factors. The
Court noted that “[u]nlike set off of the statutory
penalty, allowing set off of attorney fees would chill future
FDCPA actions and discourage attorneys from taking FDCPA
cases.” Id. at 7. In support, the Court
discussed the hypothetical scenario where “the setoff
would swallow the FDCPA award and leave the FDCPA
plaintiff's attorney without any compensation for
reaching a successful result.” The Court further
emphasized that, under Michigan law, attorneys obtain a lien
against the proceeds of a judgment when the attorney is
retained, and that the attorney lien in this case would have
priority over the offset claim. Id. at 8. Finally,
the Court discussed the relevance of the fact that Lundsted
and his attorney had a contingency fee arrangement:
A contingency fee agreement does to some degree favor setoff
because a portion of the attorney's fees obtained
(perhaps a good majority) will remain with Lunsted. But this
alone is insufficient to overcome the other three factors
that do not favor offset. Further, to the extent Lundsted
retains any portion of the fee award, it is money in his
possession that he will apply to his expenses, including debt
expenses. While this result does border on the very problem
that setoff seeks to avoid (A paying B for B to pay A),
setoff remains an equitable remedy and the equities favor not
allowing setoff to apply to attorney's fees.
August 11, 2016, Lundsted filed a motion for sanctions. In
the motion, Lundsted represented that, the day after the
Court issued the order determining setoff rights and granting
attorney fees, Defendant Roosen Varchetti &
Olivier directed Allen and Hope Process
Serving to obtain an order to seize property (writ
of execution) from the 81st District Court for the
State of Michigan to try and collect the state court
judgment. On or about the same date, Roosen Varchetti also
contacted Allen and Hope Process Serving and directed that a
check payable to Craig Lundsted be physically delivered to
Lundsted. Two court officers from Scott Hope's business,
including Scott Hope, went to Lundsted's home on May 19,
2016. Once there, Lundsted was shown the cashier's check
for $11, 663.63, the amount of the attorney fees awarded to
Lundsted by this Court. See Lackney Decl, ECF No.
51, Ex. A. The process server also served the order to seize
property pursuant to the state court judgment on Lundsted.
See Hope Decl., ECF No. 51, Ex. B. The process
server asked Lundsted if he had any assets that could be
surrendered to satisfy the judgment. To prevent seizure of
other assets, Lundsted ultimately followed Scott Hope's
suggestion and endorsed the cashier's check to the
process server in satisfaction of the state court judgment.
See Rep. Collection Activity, ECF No. 48, Ex. B.
counsel argues that Defendants purposefully intimidated and
coerced Lundsted, outside the presence of counsel, into
assigning the check for attorney fees over to Defendants in
satisfaction of Defendants' state court judgment.
Defendants argue that there was no intimidation or coercion
and that Lundsted simply chose to assign the cashier's
October 19, 2016, the Court held a hearing on Lundsted's
motion for sanctions. That hearing was continued on November
9, 2016. On October 19, 2016, Mr. and Mrs. Lundsted both
testified about the events in question. Oct. 19 Hearing Tr.,
ECF No. 53. Mrs. Lundsted testified that a court officer rang
her doorbell on the morning in question. Id. at 32.
The man, later identified as Scott Hope, told Mrs. Lundsted
that he had a court order to seize property. Id.
Mrs. Lundsted told the officers that her husband was golfing
and would be home later in the day. Id. at 33. Mr.
Hope testified that he talked cordially with Mrs. Lundsted
for a while before leaving.
Lundsted testified that his wife called him while he was
golfing and informed him of Mr. Hope's visit.
Id. at 13. After Mr. Lundsted finished his round of
golf, he returned home. Several hours later, Mr. Hope
arrived. Id. at 14. Another individual, later
identified as Chris Lackney, was also present, but Mr.
Lundsted testified that he never interacted with Mr. Lackney.
Id. at 15. Mr. Lundsted testifies that Mr. Hope
informed Mr. Lundsted that he was entitled to a check.
Id. Mr. Hope also stated that if Mr. Lundsted signed
the check over in satisfaction of the state court judgment,
the debt would be canceled. Id. at 16. Mr. Lundsted
testified that Mr. Hope represented that, if Mr. Lundsted did
not sign over the check, Mr. Hope had the right to seize Mr.
Lundsted's property, including his vehicles. Id.
at 15-17. Mr. Lundsted signed over the check.
Lundsted repeatedly asserted at the hearing that he was
“scared senseless” by the encounter and did not
understand the significance of the check. Id. at
18-19; 23-25. Mr. Lundsted also testified that Mr. Hope was
wearing an outfit that resembled a uniform, including a state
of Michigan patch. Id. at 20. Mrs. Lundsted's
account substantially corroborates her husband's version
November 9, 2016, Mr. Hope testified about the events in
question. He explained that the encounter with Mr. and Mrs.
Lundsted seemed friendly and non-confrontational for the most
part. Mr. Hope acknowledged that he mentioned the check as a
way for Mr. Lundsted to avoid seizure of any other property.
He also acknowledged that he told Mr. Lundsted that he would
seize property to collect the judgment if he did not endorse
the check. For the reasons outlined below, Lundsted's
motion for sanctions will be granted.
courts have the inherent power to award sanctions when
parties act in bad faith. Chambers v. NASCO, Inc.,
501 U.S. 32, 45 (1991). That power is derived from the
court's “equitable power to control the litigants
before it and to guarantee the integrity of the court and its
proceedings.” First Bank of Marietta v. Hartford
Underwriters Ins. Co., 307 F.3d 501, 512 (6th Cir.
2002). Specifically, federal courts are justified in imposing
sanctions when a party attempts to avoid satisfying a binding
judgment in bad faith. In re John Richards Homes Bldg.
Co., L.L.C., 404 B.R. 220, 227 (E.D. Mich. 2009).
See also John Akridge Co. v. Travelers Companies,
944 F.Supp. 33, 34 (D.D.C. 1996) (sanctioning plaintiffs
because they filed the suit in bad faith and in an attempt to
“improperly circumvent the Court's ruling in their
previous case”). Bad faith is established when an
attorney delays or disrupts litigation or hampers ...