Motley Rice, Miss. lawyer ordered to pay fees for 'frivolous' lawsuit

Jessica M. Karmasek Mar. 30, 2012, 8:15am


INDIANAPOLIS (Legal Newsline) - A federal judge has ordered a group of law firms, including Motley Rice LLP, and a Mississippi lawyer to pay nearly $400,000 in fees for pursuing a "frivolous" lawsuit against a for-profit educational institution.

Judge Tanya Walton Pratt, of the U.S. District Court for the Southern District of Indiana, granted ITT Educational Services Inc.'s motion for attorney's fees in the amount of $394,998.33 against Timothy J. Matusheski, his law offices, the law firm of Plews Shadley Racher and Braun, and Motley Rice.

In July 2007, plaintiff Debra Leveski filed a lawsuit against ITT, alleging that it violated the False Claims Act, or FCA, by causing false claims to be presented to the United States for federal educational funds arising under Title IV of the Higher Education Act.

In April 2011, the federal court ruled that it lacked subject matter jurisdiction over the dispute because the FCA's "public disclosure bar" applied -- that is, the allegations in Leveski's complaint were publicly disclosed before she filed the action, and she was not the original source of the allegations.

Leveski responded by arguing that the court's ruling was so wrong that it warranted a motion to amend/correct judgment.

ITT, meanwhile, viewed the court's ruling as an inevitable and obvious upshot of a frivolous lawsuit, compelling it to file a motion for attorney's fees and sanctions.

In January, the court denied Leveski's motion, paving the way for it to rule on ITT's motion.

The court, in its 32-page order filed Monday, agreed with ITT that the lawsuit was frivolous.

ITT is a publicly-traded corporation that focuses on technology-oriented programs of study and participates in the federal student financial assistance program.

Leveski worked on ITT's Troy, Mich., campus for nearly 11 years. From Jan. 8, 1996 to April 15, 2002, Leveski worked as a student recruiter. Then, from April 15, 2002 to Nov. 3, 2006, she worked as a financial aid administrator.

Leveski never worked at ITT's headquarters, was never an ITT manager, and never evaluated ITT employees.

In 2005, Leveski brought an unrelated employment suit against ITT. The suit settled and Leveski departed ITT in November 2006.

During her employment, Leveski never complained that ITT was in violation of the FCA because of its compensation practices.

Then, in May 2007, a private investigator working for Matusheski sent Leveski a letter explaining that Matusheski would like to speak with her.

Based on his review of public records, Matusheski knew that Leveski was an ex-ITT employee who had filed a lawsuit against her former employer.

For Matusheski, this was not an isolated incident. To the contrary, he advertises for clients who "work or worked in the financial aid or recruitment department for an institution of higher education" and, according to the court, has a history of seeking out ex-employees of for-profit educational institutions in hopes of finding an appropriate qui tam plaintiff.

Leveski eventually decided to pursue a lawsuit against ITT.

Meanwhile, two courts issued opinions dismissing very similar cases, also led by Matusheski, against for-profit institutions.

As ITT argues, Leveski's counsel should have recognized that her claim was destined to fail and voluntarily dismissed the case.

Instead, her counsel -- which later included Motley Rice and the other law firm -- continued to pursue the lawsuit.

In turn, ITT spent millions defending the suit.

"Having determined that this lawsuit is frivolous, the Court easily finds that it was brought for an improper purpose -- presumably, to extract a large settlement from ITT, which would otherwise be forced to incur massive legal fees. On this point, the Court simply cannot ignore the genesis of this lawsuit," Pratt wrote.

"Matusheski brought this lawsuit after trolling public dockets and using a private investigator to cold-call ex-employees of for-profit educational institutions who had sued their former employer. This is as unethical as it is unseemly."

Specifically, Pratt said, Model Rule of Professional Conduct 7.3 prohibits lawyers from soliciting "professional employment from a prospective client when a significant motive for the lawyer's doing so is the lawyer's pecuniary gain."

"At its core, this was an opportunistic and attorney-driven lawsuit," the judge wrote. "In fact, Matusheski's tactics are far worse than the garden-variety 'ambulance chasing' -- seen in movies and read about in John Grisham novels -- that gives many members of the public a negative perception of the legal profession.

"At least in those scenarios, the lawyer has some guess that the prospective plaintiff may have a viable case -- he or she has, after all, suffered some harm. Here, by contrast, Matusheski plucked a prospective plaintiff out of thin air and tried to manufacture a lucrative case."

Pratt said something needed to be done to "curtail -- not encourage -- Mr. Matusheski's 'creativity.'"

As for Leveski -- who argued she was indigent -- the judge had harsh words for her, too.

"Agreeing to be part of this case was a highly irresponsible move on Leveski's part; she knew that her lawsuit-related knowledge was paltry at best. Her common sense simply had to tell her that 'if something is too good to be true, it probably is.' Nonetheless, she decided to sue ITT," wrote Pratt, who threatened to make her pay some of the casts of the litigation in a later order.

This isn't the first time Motley Rice has been in hot water.

Last year, attorneys for a group of companies filed a motion in a Tennessee circuit court to enjoin plaintiff Carl "Smokey" Abbott and his counsel, Jimmy Rodgers Jr. of Summers & Wyatt PC and John E. "Rett" Guerry III of Motley Rice, from the future use of a letter asking witnesses not to speak with defense counselors.

The companies included in the motion were: Bayer CropScience Inc., Certainteed Corp., General Electric Co., Georgia-Pacific Corp., Industrial Holdings Corp., Union Carbide Corp., CBS Corp., ITT Corp. and Yarway Corp.

Abbott, who was diagnosed with mesothelioma, filed a lawsuit against the various manufacturers and suppliers of asbestos-containing products in which he was allegedly exposed to while working for the Tennessee Valley Authority, or TVA.

In the letters, the plaintiff's counsel claimed that speaking with defense lawyers would not be in the best interest of the witnesses or plaintiff; asked the witnesses not to speak with the defense lawyers or any representative of the defense counsel; stated that the defense lawyers would try to trick the witnesses into lying; and asked these witnesses not to provide any affidavits or statements to any defense lawyers.

Hamilton County Circuit Court Judge L. Marie Williams, in an order filed May 19, said the state's Rules of Professional Conduct "expressly prohibits" such communication.

However, sanctions, Williams ruled, were not warranted.

Instead, the judge said possible witness prejudice would be addressed before trial.

The plaintiff's counsel, including Motley Rice, agreed to be enjoined from undertaking "further improper communication" with potential witnesses in the case.

From Legal Newsline: Reach Jessica Karmasek by email at

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