Yuan v. & Hair Lounge Inc.

Background

Dong Yuan and Xuanhao Xu sued & Hair Lounge Inc., & Hair Lounge II Inc., Min Fei Chen, also known as Wendy Chen, and Chen Lung Lu, also known as Edison Lu. The lawsuit asserted claims under the Fair Labor Standards Act and state law for unpaid minimum and overtime wages. The case proceeded to trial, and the sanctions dispute was separate from the underlying wage claims.

The court had repeatedly ordered the parties and their lawyers to meet to discuss settlement before trial. The orders required attendance by the parties themselves, and the court later permitted participation by video. At the final pretrial conference, defendants' lawyer, Ge Qu, said that his clients were unwilling to participate and had not given him authority to conduct settlement discussions. The defendants then again declined to attend a settlement meeting.

The plaintiffs moved for sanctions under Federal Rule of Civil Procedure 16(f), asking for sanctions up to and including a default judgment. They also argued that Min Fei Chen and Chen Lung Lu had made false statements under oath about their whereabouts and inability to return to the United States for trial.

Settlement-conference violation

Rule 16(f) permits sanctions when a party or lawyer fails to obey a scheduling or other pretrial order. Judge Moses concluded that the settlement orders were clear and mandatory. The court found that Chen and Qu could attend in person, and that Lu could participate by video even if he was outside the country. Lu had instructed Qu that he was not interested in settlement negotiations, but that instruction did not excuse attendance at a conference. The court explained that a lawyer cannot settle without the client's consent, but the lawyer may still be required to attend a conference where settlement is discussed.

The court found that the noncompliance was willful because the defendants understood the orders and were capable of complying with them. It rejected default judgment as a disproportionate penalty for failing to attend a settlement conference, particularly because the plaintiffs had not shown prejudice. Instead, the court ordered the defendants and Qu to pay $1,000 to the Clerk of Court. Their liability was joint and several, meaning each could be responsible for the full amount. Payment was due within 30 days.

Alleged false statements

The court found that the individual defendants had made false statements under oath about their locations and ability to attend trial. However, Rule 16(f) does not authorize sanctions for general litigation misconduct. Judge Moses therefore considered the court's inherent power to prevent abuse of the judicial process.

That power requires clear and convincing evidence of bad faith, and false testimony by itself generally does not amount to fraud on the court. The court concluded that the statements did not concern the merits of the wage dispute, interfere with discovery, taint the evidence, or impair the jury's ability to decide the case. The statements were part of an unsuccessful effort to delay trial or avoid the defendants' live testimony. The trial was not delayed, and the defendants were not allowed to rely on deposition testimony instead of appearing. The court therefore declined to impose additional sanctions for the false statements.

Disposition

Judge Moses granted the plaintiffs' sanctions motion in part. The defendants and their counsel were ordered to pay a total of $1,000 to the Clerk of Court within 30 days. The court did not impose additional sanctions based on the individual defendants' false statements and did not enter a default judgment.