A judge in Orange County has delivered a nearly $270,000 bench slap by way of relatively rare Rule 11 sanctions against a multi-state corporate defense firm, one of its members in charge of the Winston-Salem office and his client.
Superior Court Judge A. Graham Shirley held in a 29-page order issued in late May that Jeffrey Patton of Spilman, Thomas & Battle and his client Kenneth Moch filed a frivolous complaint against venture capital firm A.M. Pappas & Associates.
The complaint was an apparent tit-for-tat to a lawsuit that Pappas brought against Moch in Durham County over an alleged defamatory email campaign that Moch waged against the firm. Moch had been the CEO of Chimerix, a pharmaceutical company, and abruptly resigned after
Pappas took a substantial investment stake in Chimerix.
Over a five-month period, Moch allegedly sent anonymous emails to Pappas’ investors, including the North Carolina State Treasurer’s Office, accusing the Pappas firm and its CEO of misappropriating $2 million. He also accused the firm’s managing partner of domestic violence, according to Pappas’ complaint.
Pappas’ attorneys at Smith Anderson in Raleigh confronted Moch, telling him that they believed he was behind the emails and demanded that he retract and apologize for the defamatory statements he’d made and pay more than $10 million in damages.
After settlement negotiations failed, Pappas named Moch as a party in its suit, which was originally filed against a John Doe. Within hours of the amendment, Moch sued Pappas
in Orange County for unfair and deceptive trade practices and abuse of process.
Patton, who signed the complaint, declined an interview request in the wake of Shirley’s sanctions order. However, he said the order would be appealed.
Shirley found that Patton believed the Orange County action would force Smith Anderson to walk away from the Durham County case because one of its attorneys might be called as a witness in Moch’s suit.
“If Mr. Patton had been correct, such a result would have created unnecessary cost and delay for the defendants,” Shirley wrote. He also found that Moch used the suit “as a vehicle to issue third-party subpoenas seeking records from the National Venture Capital Association and two research institutes in an effort to attack the defendants’ professional reputations.
According to Shirley, Moch conceded in the Durham County suit that the subpoenas were unlikely to turn up anything of relevance in his case.
Moch attempted to have his case designated to the state’s Business Court, but was turned away because the matter did not qualify for the mandatory complex business designation. However, the move delayed a hearing on Pappas’ motion to dismiss and resulted in further unnecessary costs for the defendants, Shirley found.
He also held that Moch’s filing of an amended complaint, which Patton signed, days before the hearing was yet another delay tactic.
The suit was dismissed in February 2016, about three months after it was filed. Moch challenged the dismissal, but lost at the Court of Appeals.
Patton asserted in an affidavit that “several associates and partners” at his firm had researched the strength of Moch’s case against Pappas, but did not identify those other lawyers or provide details about their level of expertise or the amount of research that was done, according to Shirley.
“Mr. Patton’s affidavit is seven pages in length and contains about four and one half pages of selected quotes and one-liners from various cases and statutes,” Shirley wrote in the order. He added that Patton had “failed to demonstrate to the court whether he undertook a reasonable inquiry into the law, and the facts show otherwise.”
Shirley ordered Moch, Patton and Spilman, Thomas & Battle to pay $269,054 for violating Rule 11 of the North Carolina Rules of Civil Procedure. Smith Anderson was awarded $219,027 from the fine and Tharrington Smith in Raleigh, which also represents Pappas, stands to receive the remaining $50,027.
An attorney for Pappas, Michael Mitchell of Smith Anderson in Raleigh, declined an interview request. Asked in an email whether a grievance had been filed with the North Carolina State Bar against Patton over his alleged conduct in the case, Mitchell replied: “Not at this time.”
Tommy Jarrett, a trial attorney in Goldsboro and former president of the North Carolina State Bar who has been practicing law since 1967, said Rule 11 sanctions are not automatically grounds for an ethical violation, “but it’s getting close.”
“You violated the rule so you’ve run afoul of the court and that could lead to ethical charges of some sort for violating the Rules of Professional Conduct,” said Jarrett, who was speaking generally and not about Patton’s case.
Shirley’s high-dollar rebuke also raises the question of whether Moch has a case against Patton and his firm for legal malpractice. Probably not, said Paul Hefferon, a Charlotte attorney at Hefferon & Hefferon who has handled professional negligence cases against other lawyers and reviewed Shirley’s order at Lawyers Weekly’s request.
“I wouldn’t accept that case if Mr. Moch approached me,” he said. “Assuming that the findings of fact in the court’s order are supported by competent evidence, it appears that Mr. Moch was engaged in the same or similar sanctionable conduct, which would likely constitute a meritorious defense to a professional negligence claim.”
Hefferon added that, based on his 34 years of experience, Rule 11 sanctions are “rarely imposed, and when imposed often overturned on appeal.”
Follow Phillip Bantz on Twitter @NCLWBantz