Commercial Litigation and Arbitration

Inherent Power — Professional Plaintiff Cannot Show Good Faith by Claiming Reliance on Advice of Counsel, Particularly when Reasserting Claims Repeatedly Rejected by Other Courts

From Stalley v. Mountain States Health Alliance, 2010 U.S. Dist. LEXIS 8643 (E.D. Tenn. Feb. 2, 2010):

Plaintiff — along with his partner in litigation, Erin Brockovich — filed numerous lawsuits in federal courts across the country, claiming the Medicare Secondary Payer Act ("MSP"), 42 U.S.C. § 1395y(b), was a qui tam statute entitling him to sue, as a private attorney general, healthcare entities for failing to reimburse Medicare for expenses incurred. Without exception, the district courts rebuffed this novel legal claim and held Plaintiff lacked standing to assert it. [Citations omitted.] Undeterred, Plaintiff pursued his claims against five defendants in this Court, which consolidated the actions and dismissed Plaintiff's suit because he lacked Article III standing on which to assert his claims and failed to state a claim upon which relief could be granted. ***

The United States Court of Appeals for the Sixth Circuit affirmed this Court's decision of judgment, holding the MSP could not possibly be construed as a qui tam statute. Stalley v. Methodist Healthcare, 517 F.3d 911, 916 (6th Cir. 2008). Further, the Sixth Circuit determined sanctions against Plaintiff and his counsel were appropriate in light of Plaintiff's "utterly frivolous" claims, which he had unsuccessfully advanced in other jurisdictions.... The Sixth Circuit determined Plaintiff and his attorneys pursued the claims "for an improper purpose" and the court could impose sanctions, after holding an evidentiary hearing and giving the parties an opportunity to be heard, under the court's inherent power....

After this Court had dismissed Plaintiff's suits, Defendants filed motions for sanctions.***

The Sixth Circuit held Plaintiff and his law firm's actions constituted bad faith in this case. Stalley, 517 F.3d at 920. As stated by the Sixth Circuit:

Without question, Stalley and his attorneys know that he has no standing to raise the claims he asserts against [Defendants]. Stalley cited no legal authority for his contention MSP is a qui tam statute, and he has failed to persuade a single one of the many other courts in which he has raised this claim. He cannot claim that he is arguing for a good-faith extension of the law because Congress must explicitly create qui tam statutes. . . . Therefore, we can come to only one conclusion: Stalley and his attorneys have continued to pursue these claims against [Defendants] for an improper purpose.

***The Court previously determined the Sixth Circuit's findings regarded the entirety of the litigation and was not limited to the appeal***. Plaintiff and his law firm litigated in bad faith by filing frivolous lawsuits, which had no legal or factual basis. Plaintiff's contention he relied on his counsel is undermined by his actions and the finding by the Sixth Circuit he was acting as a "'self-appointed bounty hunter' whose goal, apparently, is to profit at the expense of [Defendants]." Stalley, 517 F.3d at 919 (internal citation omitted). As [Magistrate] Judge Inman concluded [in an R&R], Plaintiff is a "professional plaintiff' and should be jointly and severally liable for any sanctions imposed. The record and the Sixth Circuit's opinion demonstrate both Plaintiff and his law firm knew the claims they advanced were meritless and were filed for an improper purpose.

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