ADA Compliance & Defense Lawyer Update: 99 ADA lawsuits dismissed as fraudulent and malicious
New Mexico Judge Dismisses 99 ADA Lawsuits as Fraudulent and Malicious Entertains Sanction Motions
By Martin H. Orlick, Chair at JMBM’s ADA Compliance & Defense Group
On October 26, 2017, a judge dismissed 99 ADA lawsuits, ordered an in forma pauperis plaintiff (a person without funds to pursue the cost of a lawsuit) to pay filing fees of $38,300 and authorized the defendants to file fee and sanction motions.
What's going on?
A Strange Set of Circumstances
The Arizona-based organization, Litigation Management and Financial Services, Inc. (LMFS), a descendant of the notorious ADA plaintiffs' group Advocates for Individuals with Disabilities, used Craigslist, indeed.com and other online media to find and engage disabled plaintiffs to file ADA lawsuits, and lawyers to represent them. The online advertisements resulted in hundreds of ADA lawsuits filed against businesses in New Mexico, Nevada, Colorado and Utah.
It is also how a disabled plaintiff and her lawyer came to file 99 ADA lawsuits in New Mexico, alleging each defendant's business violated the ADA and related anti-discrimination laws. According to court documents, the deal LMFS made with this plaintiff and her counsel, worked like this:
- The plaintiff was paid $50.00 per lawsuit filed.
- The plaintiff's counsel received $100 per filing for serving as counsel of record for each lawsuit filed.
- LMFS drafted all pleadings and defended any motion practice in exchange for the lion's share of any settlements that resulted from the lawsuits.
- LMFS also arranged for a driver to take the plaintiff to some — but apparently not all — of the businesses that were sued, for a photo-op.
What the Court Learned
When the Court discovered that the plaintiff and her lawyer had filed 99 cases without paying filing fees (requesting fee deferrals based on the plaintiff's in forma pauperis status), the Article III Judge instructed the Magistrate Judge to investigate the circumstances. The plaintiff's counsel appeared at the hearing held by the Magistrate, but the plaintiff missed her bus and failed to appear (despite allegedly appearing at the sites of the 99 businesses she sued). Although the Court continued the hearing to a later date, the plaintiff's counsel took the opportunity to disclose the financial arrangement, including the fee agreement, she had entered into with LMFS in which LMFS agreed to pay all costs of the lawsuits, including filing fees. The Court ordered the plaintiff's counsel to produce a copy of her funding contract with LMFS, and the plaintiff and her counsel were ordered to appear and testify at an Order to Show Cause hearing into the fee waivers and the merits of the case.
At the continued hearing, the Court examined the plaintiff and her lawyer about the merits of the lawsuit and their relationship with LMFS. The plaintiff conceded that she did not visit a number of the businesses she sued and testified that she believed the lawsuits were "frivolous". The plaintiff's counsel was examined intensely about her fee sharing agreement with LMFS and LMFS' agreement to pay all costs, including filing fees. The counsel conceded the fact that the plaintiff had the financial resources to pay her filing fees through the LMFS fee sharing agreement.
The Magistrate's Report, Findings of Fact and Recommendations
The Magistrate Judge issued a report of findings and recommendations, finding that the lawsuits were malicious and should be dismissed. The report recommended that the plaintiff pay filing fees of nearly $35,000. The report left open the issues of sanctions, defense fees and costs.
The Trial Court's Dismissal
Adopting the Magistrate's Report, Findings of Fact and Recommendations, the trial court dismissed the lawsuits as frivolous and malicious and ordered the plaintiff to pay filing fees of $38,300. The Court authorized the defendants to file motions for fees and sanctions against the plaintiff and her counsel, as well as third-party complaints perhaps against LMFS.
Who are the Victims?
Some suggest that these lawyers and plaintiffs who answered ads on Craigslist are the unwitting victims of LMFS, and did not intend to file malicious litigation. But abusive ADA litigation cannot be condoned under any circumstances. For decades, certain ADA plaintiff groups (though, not all) have attacked countless business owners, large and small, over often-minor infractions that could be quickly resolved. They have clogged an overworked court system with unnecessary litigation. And, in their quest to make an easy buck, they have done a tremendous disservice to the disabled community, which deserves better representation.This article was first published on Hotel Law Blog.
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