CINCINNATI (Legal Newsline) – Just as attorneys who were warned not to pursue a frivolous False Claims Act lawsuit were about to be assessed a suggested $170,000 penalty, they came to a settlement with the companies they’d been suing for five years.

It’s all part of a situation that played out in Ohio federal court involving a man who filed an FCA lawsuit against his former employer, even after a state jury had determined he’d stolen trade secrets from it and ordered him to pay $9.4 million in damages and attorneys fees.

Only two months after that verdict, Terry Jacobs - through his attorney James DeRoche, of Garson Johnson in Cleveland - filed an FCA lawsuit, alleging Lambda committed fraud during its contract with the U.S. Navy.

“From the outset of this federal litigation, the Court expressly warned (Jacobs’) counsel that he would face sanctions if this suit was found to be frivolous,” Magistrate Judge Stephanie Bowman wrote in May.

“Ignoring those warnings, Jacobs and his counsel continued to aggressively litigate baseless claims.”

The court repeatedly admonished Jacobs and DeRoche and wrote their claims were frivolous and were filed for improper reasons.

However, after losing the case, they appealed and hired class action employment law attorney Patrick Perotti to represent Jacobs at the U.S. Court of Appeals for the Sixth Circuit.

The appeal failed, and the Sixth Circuit ordered sanctions on Perotti for pursuing it. On May 1, it gave him two weeks to show why he shouldn’t be sanctioned.

He asked for more time and apparently reached an agreement with the defendants minutes before he and Jacobs were about to be hit with a $170,000 suggested penalty by Bowman. She had been preparing a Report and Recommendations to be considered by the judge presiding over the case.

“Literally minutes before the final (Report and Recommendations) was to be docketed… the docketing clerk received a call from defense counsel notifying… that the parties had reached a settlement concerning the amount of sanctions as to both trial and appellate counsel,” Bowman wrote.

Bowman actually had to change the wording in her report from “should be assessed” to “could be assessed.”

During the case, which alleged Lambda had committed fraud in its contract with the U.S. Navy, DeRoche failed to depose any Navy employees.

When Lambda suggested he drop the suit or face sanctions, he asked the court to allow Jacobs to inspect and photograph Lambda’s equipment and processes, even though Jacobs had stolen trade secrets from the company in the past.

The court denied DeRoche’s motion. Lambda then won summary judgment and asked the court to sanction Jacobs and DeRoche in order to recover the costs of attorneys.

Ultimately, in July, Judge William Bertelsman sanctioned Jacobs in the amount of $488,371.08. However, Bowman wrote Deroche appears unable to pay the state court verdict against him.

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