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Federal judge provides reminder that fraudulent mass tort litigation can carry criminal, as well as civil, consequences

Recently, a Mississippi federal judge provided a heartening reminder that, while it may seem all too often ignored, fraud in the mass tort context can carry serious—indeed, criminal—consequences.  As we discuss below, victims of fraudulent litigation conduct may have civil recourse as well.

Erstwhile “litigation consultant” Gregory P. Warren was convicted in 2016 of mail fraud, wire fraud, and identity theft for his role in fraudulently inflating the number of claimants in a $2.3 billion settlement in the Deepwater Horizon oil spill litigation.  See United States v. Warren, 728 F. App’x 249 (5th Cir. 2018), cert. denied, 139 S. Ct. 158 (2018).  Warren was sentenced to 17 years in prison and ordered to pay a $100,000 fine, all of which was affirmed by the Fifth Circuit Court of Appeals in 2018.  See id.

Earlier this month, in the latest chapter of Warren’s saga, Judge Louis Guirola, Jr. of the Southern District of Mississippi denied as untimely Warren’s motion challenging his sentence, finding that Warren offered no explanation for his failure to comply with the applicable one-year filing period, and failed to set forth any new evidence tending to show “actual innocence.”  United States v. Warren, No. 1:15CR65-LG-RHW-4, 2020 WL 33220, at *2 (S.D. Miss. Jan. 2, 2020).

While perhaps the severest example, Warren is not the only one who was taken to task for misconduct in the Deepwater Horizon litigation.  During the course of the proceedings, the district judge appointed a special master, former FBI director Louis Freeh, to conduct “fact finding as to . . . possible ethical violations or other misconduct within the CSSP [Court-Supervised Settlement Program].”  ECF Doc. No. 10564, Case No. 2:10-md-02179-CJB-SS (E.D. La.).

Freeh’s investigation led to at least two attorneys being disqualified from participation in the CSSP due to their improper payment of referral fees in exchange for clients.  See In re: Deepwater Horizon, 824 F.3d 571 (5th Cir. 2016).  One claimant was found to have committed fraud “when it misrepresented itself as an on-going business and not a Failed Business” and was ordered “to pay restitution . . . in the amount of $1,034,228.42.”  In re: Deepwater Horizon, MDL 2179, 2016 WL 2992439, at *5 (E.D. La. May 24, 2016), aff’d 857 F.3d 246 (5th Cir. 2017).  The claimant’s law firm was also ordered to “return the $258,527.21 it received on a contingent-fee basis for representing . . . the claim.”  Id.

Misconduct such as Warren’s and the others’ discussed above harms not only the justice system, but also the individuals and businesses against whom bogus claims are brought and from whom settlements are effectively extorted.  Defendants harmed by fraudulent litigation conduct—by having to defend or settle claims that are the product of, or infected by, wrongdoing—should remember that there may be civil recourse, not simply under the rules of civil procedure, but also under the common law or state or federal statues, for their harms.

For example, Warren was convicted of mail and wire fraud—two predicate acts under the federal RICO statute that may, under appropriate circumstances, support a civil cause of action under RICO’s “private attorney general” provision, 18 U.S.C. § 1964(c).  See CSX Transp., Inc. v. Peirce, 974 F. Supp. 2d 927 (N.D. W. Va. 2013).  Such misconduct may also satisfy the elements of common law fraud, conspiracy, or aiding and abetting.  See id.; see also, e.g., Ill. Cent. R. Co. v. Guy, 682 F.3d 381, 390 (5th Cir. 2012).  In fact, two of the Deepwater Horizon defendants themselves brought claims for fraud, rescission, unjust enrichment, and abuse of process against the attorney who represented the claimants in the inflated $2.3 billion settlement from which Warren’s criminal conviction arose.  See ECF Doc. No. 1, Case No. 2:13-cv-06674-CJB-JCW (E.D. La.).

While many jurisdictions recognize some form of a “litigation privilege” applicable to certain conduct undertaken in litigation, such privileges do not necessarily immunize intentional or fraudulent conduct and, in any event, generally cannot bar federal statutory causes of action like RICO.  See, e.g., Clark v. Druckman, 624 S.E.2d 864 (W. Va. 2005) (“[T]he litigation privilege does not apply to claims of malicious prosecution and fraud.”); Steffes v. Stepan Co., 144 F.3d 1070, 1074 (7th Cir. 1998) (“A state absolute litigation privilege purporting to confer immunity from suit cannot defeat a federal cause of action.”).

Even in the absence of substantive claims against the wrongdoers, “a court has the power to conduct an independent investigation in order to determine whether it has been the victim of fraud.”  Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991).  This “inherent power also allows a federal court to vacate its own judgment upon proof that a fraud has been perpetrated upon the court.”  Id.

Thus, in addition to the remedies provided under Rules 11, 37, and 60 and 28 U.S.C. § 1927 (and their state law equivalents), defendants who believe they have been harmed by litigation misconduct may ask a court to exercise its inherent authority under Chambers to investigate.  It is that very authority the district court in the Deepwater Horizon litigation invoked in appointing Freeh as an investigatory special master and imposing the discipline discussed above.  The Fifth Circuit, in turn, specifically cited Chambers in affirming the attorney disqualifications ordered by the district court.  See In re: Deepwater Horizon, 824 F.3d at 577.

Mass tort defendants should remain mindful of the rights and remedies discussed above, and give consideration to them if and when it is discovered that they may have been the victim of fraudulent litigation conduct.