Last Friday, the Sixth Circuit affirmed a district court decision ordering Terry Jacobs, a former employee of Cincinnati-based Lambda Research, and his attorney to pay Lambda’s attorney’s fees for filing a frivolous lawsuit. See United States of America, ex rel. Terry Jadcobs v. Lambda Research, Inc. (6th CIr. Case No. 14-3705). Although the loss on appeal already was a bad outcome for Jacobs’s attorney, the Sixth Circuit went further. It invoked its authority under 28 U.S.C. § 1927 and Rule 38 of the Federal Rules of Appellate Procedure and ordered Jacobs’s attorney to show cause why he should not be sanctioned for filing a frivolous appeal.
Terry Jacobs had worked at Lambda from 2000 to 2002 before leaving to become vice president of Ecoroll Corporation, a German competitor. Lambda later sued Jacobs in Ohio state court alleging that Jacobs had misappropriated Lambda’s trade secrets and gave them to Ecoroll. Following a jury trial, Jacobs was hit with an $8 million judgment in Lambda’s favor, along with an additional $1.4 million in attorney’s fees that he was ordered to pay to Lambda.
Shortly after judgment in the state court action, Jacobs sued Lambda in Ohio federal court under the False Claims Act, 31 U.S.C. § 3730. Although Jacobs filed the complaint under seal (as required by law), he later told his associates at Ecoroll about the complaint. At the outset of the case, the district judge repeatedly warned Jacobs’s attorney that he would be sanctioned if the lawsuit turned out to be frivolous. Jacobs’s attorney, however, assured the district court that the lawsuit was legitimate. After discovery, Lambda moved for summary judgment and sanctions under 28 U.S.C. § 1927, Rule 11 of the Federal Rules of Civil Procedure, and the False Claims Act. The district court granted Lambda’s motion, finding that “[t]here is abundant evidence that the claims alleged in this case are frivolous and that Jacobs brought this action . . . as retaliation for Lambda’s successful state court action [and/or] as an attempt to obtain Lambda’s sensitive business information.”
On appeal, the Sixth Circuit agreed that the district court correctly granted summary judgment to Lambda. The Sixth Circuit further stated that “we are inclined to conclude that this appeal is both baseless and brought primarily for purposes of harassment, and that Jacobs’s attorney . . . should be sanctioned as a result.” The panel gave Jacobs’s attorney 14 days to respond to its show cause order.
As regular readers of our blog know, the Sixth Circuit in recent years has not hesitated to sanction attorneys for frivolous and unwarranted appeals. Just last year, we posted an in-depth analysis of recent Sixth Circuit case law on sanctions and passed along the Sixth Circuit’s warning that lawyers risk being sanctioned if they act “ostrich-like” by “prosecuting a case while refusing to recognize the relevant legal standard or counter the opposing party’s factual arguments.” Kempter v. Michigan Bell Telephone Co., 2130 FED App. 0786N (6th Cir. 2013). The Jacobs opinion is the latest stark reminder to appellate attorneys that pursuing a frivolous and unwarranted appeal can easily draw the ire of the judges.