Veritext Corp. v. Bonin

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

VERITEXT CORP., ET Al. CIVIL ACTION

VERSUS NO. 16-13903

C/W 17-9877

REF: ALL CASES

PAUL A. BONIN, ET AL. SECTION: “B”(2)

REASONS

This court previously granted plaintiffs’ motion for partial

summary judgment on the affirmative defenses of unclean hands and

allocation of fault, and mooted the affirmative defenses in pari

delicto, indemnification, and contribution (Rec. Doc. 123) for the

following reasons.

On February 25, 2019, this court consolidated plaintiff

Esquire Deposition Solutions, LLC, “Esquire” and plaintiff

Veritext Corp.’s actions against defendants Paul A. Bonin, Vincent

P. Borrello, Jr., Milton Donegan, Jr., Suzette Magee, Kimya M.

Holmes, John H. Anderssen, May F. Dunn, Elizabeth C. Methvin, John

J. Lee, Jr., and Laura Putnam. See Rec. Doc. 91. Veritext and

Esquire are both Delaware corporations providing court-reporting

services to clients across the United States, including in

Louisiana, in depositions, arbitrations, and other proceedings;

both are also consumers of court reporting services in Louisiana.

Rec. Docs. 1 at 5, 117 at 5. Plaintiffs’ businesses provide

negotiated rates and discounts for court reporting services to

frequent customers who agree to utilize plaintiffs’ services for

all or some of their court reporting need. Rec. Doc. 4 at 5.

Defendants are current and former members of the Louisiana

Board of Examiners of Certified Shorthand Reporters the “Board”

—a regulatory body created “for the purpose of encouraging

proficiency in the practice of shorthand reporting as a profession,

promoting efficiency in court and general reporting, and …

establishing a standard of competency for those persons engaged in

it.” LA. STAT. ANN. §37:2551(A) (2020). The Board is vested with

enforcement authority of the provision under scrutiny in this

matter, Louisiana Code of Civil Procedure Article (1434), which

prohibits

…a person who has a contractual relationship with a party

litigant to provide shorthand reporting or other court reporting

services…[or] a person employed part or full time under contract

or otherwise by a person who has a contractual relationship with

a party litigant to provide shorthand reporting or other court

reporting to services… LA. CODE CIV. PRO. ANN. art. 1434(A)(2) (2020).

In 2012, the Board began enforcing Article 1434 more

aggressively, declaring that the law prohibits all contracts

between court reporters and party litigants, including volume-

based discounts and concessions to frequent customers. Veritext

consequently brought a variety of claims under the Constitution—

under the dormant Commerce Clause, the Due Process Clause, and the

Equal Protection Clause of the Fourteenth Amendment—and under

Section 1 of the Sherman Act, 15 U.S.C. § 1. Rec. Doc. 4. This

court dismissed plaintiff’s constitutional challenges, and

subsequently dismissed the Sherman Act claim on reconsideration.

Veritext Corp. v. Bonin, 259 F. Supp. 3d 484 (E.D. La. 2017), on

reconsideration, 2017 WL 3279464 (E.D. La. Aug. 2, 2017). On

appeal, the Fifth Circuit confirmed the dismissal of Veritext’s

constitutional claims but reversed the dismissal of its Sherman

Act claim because it found “clear[ly] from the record that the

members of the Board qualify as active market participants.”

Veritext Corporation v. Bonin, 901 F.3d 287, 293 (5th Cir. 2018).

On May 5, 2020, defendants filed a motion to compel Veritext

to identify all instances in which Veritext provided court

reporting services to party litigants from January 1, 2007 to the

present after Veritext objected to the interrogatory as overbroad,

unduly burdensome, and interposed for the improper purpose of

defendants investigating “compliance with the anticompetitive

rules and regulations challenged by this lawsuit.” Rec. Doc. 215-

4 at 85. The Magistrate Judge overruled the objection and granted

defendants’ motion to compel. Rec. Doc. 228. Plaintiffs then filed

the instant motion for partial summary judgment on the affirmative

defenses of unclean hands, in pari delicto, indemnification,

contribution, and allocation of fault. Rec. Docs. 229, 231, 234.

I. PARTIES’ CONTENTIONS

Plaintiffs contend that defendants are prohibited from

alleging in pari delicto and unclean hands as affirmative defenses

and that this court would be undermining antitrust laws in allowing

them to do so. Rec. Doc. 229-4 at 3-5. Further, plaintiffs argue

a hypothetical Article 1434 violation has nothing to do with

whether defendants engaged in price fixing or other conduct in

violation of the Sherman Act. Id. at 5. In fact, in their reply to

defendant’s opposition, plaintiffs assert defendants failed to

submit any evidence showing that plaintiffs’ actions harmed them

or that plaintiffs would have no cause of action but for their

alleged violations of Article 1434. Rec. Doc. 234 at 3.

Plaintiffs also argue that Supreme Court precedent has

prohibited defendants from asserting indemnification,

contribution, and allocation of fault. Id. (citing Texas

Industries v. Radcliff Materials, Inc., 451 U.S. 630, 645-47

(1971)). Moreover, plaintiffs are not seeking to hold individual

defendants liable for damages if they are sued only in their

official capacities. Id. at 6.

Defendants do not oppose the dismissal of their affirmative

defenses of contribution and indemnity in light of the Supreme

Court’s decision in Texas Industries v. Radcliff Materials, Inc.

and contend they never asserted the affirmative defense of in pari

delicto. Rec. Doc. 231 at 5. However, defendants maintain that

their unclean hands defense and defense disputing joint and several

liability are legally relevant and should defeat summary judgment.

Defendants first argue that if this court grants plaintiffs’

injunction, it would “encourage and reward illegal conduct that

violates Article 1434” and that this illegal conduct is relevant

in determining whether plaintiffs are entitled to injunctive

relief. Rec. Doc. 231 at 8. Defendants claim plaintiffs

mischaracterized the holdings in Perma Life and Kiefer-Stewart and

that every other case that plaintiffs cited were either overturned

on appeal, were in pari delicto defense cases (which is not at

issue in this matter) or were inapposite. Id. at 9-15.

Finally, defendants argue that summary judgment is

inappropriate because there are genuine issues of material fact

regarding when, if at all, individual defendants participated in

the alleged conspiracy and to what extent they may be held liable.

Rec. Doc. 231 at 18. For example, some defendants are sued only in

their official capacity, while other defendants served on the Board

for only part of the duration plaintiffs’ damages allegedly

occurred.

II. LAW AND ANALYSIS

Under Federal Rule of Civil Procedure 56, summary judgment is

appropriate when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to judgment as

a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322

(1986) (quoting Fed. R. Civ. P. 56c); See also TIG Ins. Co. v.

Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002). In its

motion for summary judgment, plaintiffs do not raise any questions

of material facts, but puts at issue whether plaintiffs are

entitled to judgment as a matter of law. Defendants assert they

did not assert in pari delicto as a defense and withdrew their

“prophylactic” affirmative defenses of contribution and indemnity;

therefore, this court must only analyze the defenses of unclean

hands and allocation of fault.

A. Joint and Several Liability

Rule 12(f) of the Federal Rules of Civil Procedure provides

the court with authority to strike from any pleading “any

redundant, immaterial, impertinent, or scandalous matter” either

on its own or on a party’s motion. Section 1 of the Sherman Act

has broad sweeping language, but the remedial provisions are

detailed and specific. See 15 U.S.C.A. §15(a). In addition to

making violations of section 1 a crime, Congress has expressly

authorized a private right of action for treble damages, costs,

and reasonable attorney’s fees and has not substantially amended

these remedies since the Clayton Act was enacted in 1914. Id. The

Fifth Circuit and the Supreme Court have firmly held that

participants in an antitrust conspiracy face joint and several

liability for the damages caused by their illegal actions and

plaintiffs may recover their entire damages from a single defendant

in a multi-defendant antitrust suit. See e.g., Wilson P. Abraham

Const. Corp. v. Texas Industries, Inc., 604 F.2d 897 (5th Cir.

1979) (“[T]he denial of contribution among wrongdoers, together

with a plaintiff’s right to sue and collect from only one

defendant…[does not] offend constitutional principles.”); Texas

Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630 (1981)

(“[D]efendants should be jointly and severally liable … [it]

ensures that the plaintiffs will be able to recover the full amount

from some, if not all, participants.).

Defendants argue and plaintiffs agree that in regard to

defendants sued in their official capacities only, allocation of

fault is irrelevant in this case. Plaintiffs are not seeking to

hold these “official” defendants liable for damages. Therefore,

there is no issue of allocation of fault to official defendants.

However, defendants argue, but provide no case law or

statutory authority to support their contentions, that defendants

sued in their individual capacity have “the right to assert that

he or she is not jointly and severally liable with the other

Individual Defendants until Plaintiffs satisfy their burden of

proof that each of the Individual Defendants engaged in conduct

violating the Sherman Act.” Rec. Doc. 231 at 17. Defendants

conflate two issues: whether defendant may assert an affirmative

defense and whether plaintiff can meet their burden at trial.

Neither of which is dependent on the other. Rule 8(c) requires a

party to set forth “any avoidance or affirmative defense” and

includes a non-exhaustive list of eighteen affirmative defenses.

Fed. R. Civ. Pro. 8(c) (2021). An affirmative defense is a

defendant’s assertion, if found true, will negate civil liability,

even if it is proven that the defendant committed the alleged acts.

Affirmative Defense, BLACK’S LAW DICTIONARY (9th ed. 2009). The burden

to prove an affirmative defense is solely on the party asserting

it—the defendants in this case. Plaintiffs must satisfy their

burden of proof at trial to determine whether an affirmative

defense is even necessary, but that burden is irrelevant to the

applicability of specific defenses.

Defendants, again without offering any case law or statutory

authority to support their contentions, subsequently muddies the

timing individual Board members served on the board with the extent

to which they may be held liable. Whether defendants joined the

board before or after the alleged conspiracy commenced is

irrelevant, defendants may still be liable for all damages flowing

from the alleged conspiracy. See Morton’s Mkt., Inc. v. Gustafan’s

Dairy, Inc., 198 F.3d 823, 838 (11th Cir. 1999); MM Steel, L.P. v.

JSW Steel, Inc., 806 F.3d 835, 844 (5th Cir. 2015).

To the extent that plaintiffs meet their burden at trial to

prove that individual Board members violated antitrust laws and

participated in the alleged conspiracy, defendants do not have

“the right to assert that he or she is not jointly and severally

liable.”

B. Clean Hands Doctrine

Defendants accuse plaintiffs of not citing “a single case

where private parties … sought to enjoin an arm of the state …

implicat[ing] significant policy considerations,” and plaintiffs’

unclean hands render summary judgment inappropriate. Id. at 8.

Likewise, defendants fail to cite a single case or address any

public policy considerations. Again, this argument is more

appropriate for the merits of plaintiffs’ case, and not the

applicability of an affirmative defense.

Moreover, defendants are contradictory throughout their

response to plaintiff’s motion and it is unclear what defendants

seek in their opposition to it. Defendants assert that plaintiffs

are barred from obtaining injunctive relief, yet they “seek only

to limit the quantum of damages that Plaintiffs can recover by

excluding revenue that would have been earned in violation of

Article 1434.” Rec. Doc. 231 at 9-10. Then defendants assert that

plaintiffs’ unclean hands and wrongful actions do not “completely”

bar plaintiffs’ suit, and they “seek only to limit the quantum of

damages that Plaintiffs can recover … a viable defense under Perma

Life and Kestenbaum,” Id. at 15, before concluding that the defense

is “viable in challenging Plaintiffs’ demand to enjoin enforcement

of constitutional state law…” Id. at 19. Regardless of what

defendants purportedly asked this court, plaintiffs “unclean

hands” are irrelevant to their claim for injunctive relief and the

quantum of recoverable damages.

In their memoranda, both parties argue over what a variety of

cases have held with regards to the Clean Hands Doctrine.1 Because

Congress is silent concerning defenses to private antitrust suits,

courts are compelled to determine whether common law defenses

should be available to defendants. Whether plaintiff’s illegal

conduct may defeat an injunction or limit recovery of damages

continues to perplex courts.

Courts should reject the Clean Hands Doctrine “where Congress

[has] authorized[d] broad equitable relief to serve important

national purposes.” See McKennon v. Nashville Banner Publ. Co.,

513 U.S. 352, 357 (1995) (addressing the doctrine in the context

of an AEDA claim); Vichare v. AMBAC Inc., 106 F.3d 457, 468 n.5

(2d Cir. 1996) (applying McKennon’s rationale in a Title VII

matter); Mancuso v. Douglas Elliman LLC, 808 F. Supp.2d 606, 631

1 Defendants consistently confuse issues and manipulate case law to make

unsound arguments that are devoid of any merit. E.g., In defendants’

opposition, defendants write “Plaintiffs’ illegal conduct, unclean hands, and

fault ‘can of course be taken into consideration in computing damages,’ as

made clear by the Supreme Court in Perma Life…Plaintiffs’ Motion should be

denied to the extent it seeks dismissal of Defendants’ Unclean Hands

Defense.” Rec. Doc. 231 at 19 (citing Perma Life, 392 U.S. at 140; U.S.

Football League, 842 F.2d at 1369, etc.). But in U.S. Football League, the

court asserts, “Neither Perma Life nor Kiefer-Stewart suggests that otherwise

readily admissible evidence must be excluded because it might be relevant to

an in pari delicto or unclean-hands defense. In fact, Perma Life explicitly

states that such evidence “can of course be taken into consideration in

computing damages.” The court is discussing evidence relevant to causation

and damages, not, as defendants imply, to allow them to assert unclean hands

as a defense.

(S.D.N.Y. 2011) (finding the doctrine is inapplicable in FHA

cases). A review of congressional intent and public policy can

help resolve the perplexity in antitrust cases. The underlying

policy of antitrust laws is the encouragement of competition.

Standard Oil Co. v. United States, 221 U.S. 1, 61 (1911) (the

purpose of the Sherman Act is to prevent “monopoly and the acts

which produce the same result as monopoly”). Courts have recognized

that private suits against violators play a vital role in the

promotion of competition because they help deter antitrust

violations and protect the public interest at large. Moreover,

treble damages serve as a deterrence because awards are notoriously

larger compared to other civil actions and have exceeded $1 billion

dollars in recent history. See In re Urethane Antitrust Litigation,

768 F.3d 1245 (10th Cir. 2014) (treble damages totaled $1.2

billion); Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768 (6th Cir.

2002) (treble damages totaled $1.05 billion).

Moreover, the Clean Hands Doctrine is an equitable defense

and even though “He who comes into equity must come with clean

hands,” equity “does not demand that its suitors shall have led

blameless lives.” Loughran v. Loughran, 292 U.S. 216 (1934). Courts

“apply the maxim requiring clean hands only where some

unconscionable act of one coming for relief has immediate and

necessary relation to the equity that he seeks.” Keystone Driller

Co. v. General Excavator Co., 290 U.S. 240, 245 (1933). This maxim

“does not mean that courts must always permit a defendant wrongdoer

to retain the profits of his wrongdoing merely because the

plaintiff himself is possibly guilty of transgressing the law in

the transactions involved.” Johnston v. Yellow Cab Transit Co.,

321 U.S. 383, 387 (1944) (emphasis added). The court may employ

the doctrine to deny injunctive relief “where the party applying

for such relief is guilty of conduct involving fraud, deceit,

unconscionability, or bad faith related to the matter at issue to

the detriment of the other party.” Performance Unlimited v. Questar

Publishers, 52 F.3d 1373, 1383 (6th Cir. 1995) (emphasis added).

But

[E]ver since the Supreme Court in Perma Life, rejected the

defense of in pari delicto2

in antitrust cases, it has been

clear that whenever some maxim of equity (such as that to get

equitable relief you must have “clean hands”) collides with

the objectives of the antitrust laws, the equity maxim must

give way.

General Leaseways, Inc. v. National Truck Leasing Ass’n, 744 F.2d

588, 597 (7th Cir. 1984). And in Kiefer-Stewart, the plaintiff’s

alleged unclean hands “could not legalize the unlawful combination

by respondents nor immunize them against liability to those they

injured.” Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340 U.S.

2 In pari delicto bars plaintiffs from recovering damages when both parties

are equally at fault, but the Supreme Court in Perma Life held that it “is

not to be recognized as a defense to an antitrust action.” Perma Life

Mufflers, Inc. v. Intern. Parts Corp., 392 U.S. 134, 140 (1968). If

plaintiffs have “unclean hands” but are at less-than equal fault, it stands

to reason that plaintiffs should not be barred from bringing their antitrust

action or recover damages.

211, 214 (1951). Because the policy for enacting antitrust laws is

to promote competition and Congress enacted private actions to

protect the public from monopolies, defendants’ alleged conspiracy

outweighs any “unclean hands” the plaintiffs may bring to court.

Further, case law analyzing the Clean Hands Doctrine in

antitrust cases, supra, scrutinized plaintiffs that also violated

antitrust laws—not state statutes as the defendants allege in the

current matter. Reason dictates that if this court finds that the

statute in question violates the Sherman Act, the plaintiffs would

not be coming to court with “unclean hands” for any violations of

that statute. Therefore, defendants may not assert the Clean Hands

Doctrine to bar plaintiffs from seeking injunctive relief or to

limit the quantum of damages3.

New Orleans, Louisiana, this 7th day of April, 2021

___________________________________

SENIOR UNITED STATES DISTRICT JUDGE

3 There has been continuous discussion about whether courts have authority to

invoke an equitable defense like unclean hands to bar an action for damages

since the courts of law and equity merged. But because the plaintiffs would

not have “unclean hands” if the court rules in their favor on the merits of

this case, that discussion is unnecessary.