LYING IS STILL BAD – Indiezone v. Rooke

Indiezone, Inc., et al. v. Todd Rooke, et al., 13-cv-4280 (N.D. Ca.)

In 2013 Indiezone filed suit against a number of former employees claiming they stole certain intellectual property. An arbitration agreement would have required the parties to arbitrate instead of bring their claims in court. To avoid arbitration Indiezone brought in co-plaintiff eoBuy which was not a party to the arbitration agreement. The only problem was eoBuy did not exist and was apparently fabricated for the sole purpose of avoiding arbitration.

In January several of the defendants filed to dismiss eoBuy and argued that arbitration was proper. Rather than concede that eoBuy did not exist Indiezone dug the hole deeper and began to fabricate evidence and make other claims that eventually unraveled under scrutiny. The result was severe sanctions from the court.

It is important to note that Indiezone may have had valid claims against the defendants but in their efforts to avoid arbitration they lied to the Court and as a result their claims were denied.

Judge Chhabria did not pull any punches:

The Court finds that the plaintiffs submitted multiple misleading and false declarations and fraudulent documents… Bad faith of this degree easily supports an award of sanctions under the Court’s inherent powers. See Chambers v. NASCO, Inc., 501 U.S. 32, 47 (1991).

The Court went on to find both the plaintiffs and their counsel liable for costs and fees,

Counsel for the plaintiffs also participated in this bad faith conduct. Despite having been put on notice that eoBuy did not exist … [counsel] continued to file the plaintiffs’ bad faith motions and to support and adopt [Indiezone’s] misrepresentations in his own declarations and through motion and oral argument. [Counsel’s] misrepresentations to the Court far exceed the ethical bounds of advocacy and constitute bad faith. At a minimum, [counsel] has been reckless regarding the truth of his representations to the Court. [Counsel’s] actions throughout this litigation also demonstrate his intent to unreasonably and vexatiously multiply and manipulate the proceedings, including filing numerous motions to amend, filing numerous requests for extension of time, and failing to abide by court order on multiple occasions. Sanctions are therefor appropriate … under the Court’s inherent authority, as well as 28 U.S.C. § 1927.

This case is also dismissed with prejudice, pursuant to the Court’s inherent power, because the plaintiffs have “engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings” and “willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice.” Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006) (quoting Anheuser-Busch, Inc. v. Natural Beverage Distribs., 69 F.3d 347, 348 (9th Cir. 1995)). Dismissal is warranted in a case such as this one where a party has knowingly submitted false and misleading documents. See Combs v. Rockwell Int’l Corp., 927 F.2d 486, 488-89 (9th Cir. 1991). Moreover, consideration of the five factors discussed in Leon warrants dismissal. See Leon, 464 at 958. The public’s interest in expeditious resolution of litigation and the Court’s need to manage its docket both support dismissal, because the sanctionable conduct has unnecessarily prolonged this case and wasted a tremendous amount of the Court’s time. Given the Court’s finding of bad faith and issuance of sanctions under its inherent authority, a showing of prejudice to the defendants is not needed (although the defendants have certainly labored under the misconduct of the sanctioned parties). Nursing Home Pension Fund v. Oracle Corp., 254 F.R.D. 559, 564-65 (N.D. Cal. 2008) (explaining that “a district court need not consider prejudice to the party moving for sanctions” when acting pursuant to its inherent authority).

 The lesson: Lying is (still) bad. Win a case on the merits.

Related documents:

Motion to Compel Arbitration and Dismiss eoBuy: Indiezone, Inc., et al. v. Todd Rooke, et al., Dkt. 29, 13-cv-4280 (N.D. Ca., Jan. 1, 2014)

Motion for Sanctions: Indiezone, Inc., et al. v. Todd Rooke, et al., Dkt. 104, 13-cv-4280 (N.D. Ca., May 1, 2014)

Order for Sanctions: Indiezone, Inc., et al. v. Todd Rooke, et al., Dkt. 145, 13-cv-4280 (N.D. Ca., Sept. 2, 2014)


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