Unpublished Disposition, 897 F.2d 533 (9th Cir. 1988)

MEMORANDUM^* 

John Olagues ("Olagues") appeals pro se a district court order, in his action under Rule 10(b) of the Securities and Exchange Act of 1934, awarding attorney fees and Rule 11 sanctions to Alvin Schmidt ("Schmidt") and Steve Mitchell ("Mitchell") and granting Schmidt's motion to quash Olagues' deposition subpoena duces tecum.

FACTS AND PROCEEDINGS

The genesis of Olagues' present suit is a merger that occurred between Santa Fe International Corporation and Kuwait Petroleum in 1981. Following the merger, the Securities Exchange Commission determined that there had been certain insider trading connected with the merger, and filed suit in the Southern District of New York in an action entitled Securities Exchange Commission v. Certain Unknown Purchasers of Santa Fe Options, No. 81-CIV6553WCC. As a result of this action, certain options traders who had losses and who had traded directly or contemporaneously with the alleged insiders were allowed to recover from a fund in that case. Although Olagues had traded in such options, he was not allowed to recover from the fund. See Securities Exchange Commission v. Certain Unknown Purchasers, 817 F.2d 1018, 1021-22 (2d Cir. 1987), cert. denied, 98 L. Ed. 2d 979 (1988).

During the pendency of the New York case, Olagues attempted to intervene in a private lawsuit in San Francisco, California, being handled by the same district court judge that handled the present case. The district court in that case denied Olagues' motion for intervention, because the San Francisco case had been dismissed as part of the settlement agreement for disbursing the funds in the New York case. Olagues appealed this denial of intervention. We affirmed the district court and sanctioned Olagues for bringing a frivolous appeal. See Charles v. Keaton, No. 87-2269 (9th Cir. May 25, 1988).

Following Olagues' unsuccessful attempts to gain a portion of the disbursement fund, Olagues filed an arbitration claim before the Pacific Stock Exchange, including in it the same issues decided by the Second Circuit in the New York action. In this arbitration, Olagues sought to recover from Schmidt, Mitchell and other market makers who received part of the fund. Olagues also attempted to use this arbitration to obtain the same documents he unsuccessfully sought in this action by the subpoenas at issue here. The Pacific Stock Exchange denied Olagues' request for this discovery and ruled that his claims were not a proper subject for arbitration. Olagues then unsuccessfully sought to compel arbitration in the California state courts. See Olagues v. French, No. 88-240 (Cal.Sup.Ct.1988), appeal dismissed, No. 88-4240 (Cal.App.Ct.1989).

Olagues ultimately filed his own private lawsuit under Rule 10(b). In this action, he again sought the discovery that had been denied him in his previous arbitration. He specifically sought to take Schmidt's and Mitchell's depositions and to have them produce all records concerning their trades in Santa Fe International securities during the relevant portion of 1981 as well as any records pertaining to the monies they received as part of the distribution fund in the New York action. Olagues had subpoenas issued covering these documents, but unsuccessfully attempted to have them served. Nevertheless, his process server filed false proofs of service indicating that they had been served. Counsel for Schmidt and Mitchell advised Olagues that service had not been effected, and Olagues notified the parties to the action that the depositions would not proceed.

The day after opposing counsel notified Olagues that appellees had not been served, Olagues issued another identical subpoena for Schmidt. Olagues then succeeded in serving Schmidt with this subpoena for another deposition.

Even though Olagues had been advised that the first two deposition subpoenas were not served and even though he knew that witness fees had not been served with them, he filed and served a motion for contempt. This motion covered only the initial subpoenas supposedly served, but did not cover the second, substantially identical subpoena, served on Schmidt. Approximately two weeks after Olagues had filed his motion for contempt, appellees filed affidavits for themselves and others to show that they had not been served with the initial subpoenas. Approximately two weeks after filing these affidavits in opposition to Olagues' motion, appellees filed a motion for sanctions and attorney fees against Olagues for his filing of the motion for contempt. The following day, Olagues attempted to withdraw his motion for contempt. Nevertheless, the district court ordered Olagues to pay reasonable attorney fees and sanctioned Olagues under Rule 11.

At the same hearing, the district court granted Schmidt's motion to quash the second subpoena on the ground that it did not seek relevant information, but was for the purpose of harassment. The court also ordered Olagues to pay the attorney fees related to the motion to quash and ordered Olagues to stop harassing Schmidt and Mitchell. Olagues argues that the district court's award of attorney fees and Rule 11 sanctions was improper. We disagree.

ANALYSIS

A. Attorney Fees and Sanctions for Schmidt's and Mitchell's Opposition to Olagues' Motion for Contempt

Olagues first attacks that part of the district court's order that awarded Schmidt and Mitchell $2,500 in attorney fees and $4,000 in sanctions with respect to their opposition of Olagues' motion to hold them in contempt for their alleged failure to comply with his initial subpoenas.

Rule of Civil Procedure 37(a) (4) provides that if a motion to compel discovery is denied,

the court shall ... require the moving party or the attorney advising the motion or both of them to pay the party or deponent who opposed the motion the reasonable expenses incurred in opposing the motion, including attorney's fees, unless the court finds that the making of the motion was substantially justified or that other circumstances make an award of expenses unjust.

Fed. R. Civ. P. 37(a) (4). In this case, it is clear that Olagues' motion for contempt was not "substantially justified." Not only was he aware that the subpoenas had not been served, but the subpoenas were invalid on their faces, because they stated that no fees were tendered with service of the subpoenas. See C.F. & I. Steel Corp. v. Mitsui & Company, 713 F.2d 494, 496 (9th Cir. 1983). Thus, Olagues' motion was clearly unfounded and the award of fees was required by Rule 37.

The district court also properly awarded Rule 11 sanctions for Olagues' bringing of the motion for contempt. Olagues has argued that the Rule 11 sanctions were unjustified, because he was never informed by opposing counsel that the original subpoenas were not served and because he withdrew his motion for contempt as soon as he saw appellees' affidavits in opposition to his motion. However, quite contrary to his assertion at oral argument, Olagues filed a signed declaration with the district court in which he alleged that appellees' counsel had indeed informed Olagues that the appellees had not been served.

While in some circumstances we might not fault a litigant for believing a process server over opposing counsel, Olagues' conduct shows that he had doubts about whether or not Schmidt and Mitchell had been served. If he had truly believed that service was effected, then there would seem to be little reason for him to issue an identical subpoena the day after he had been informed by opposing counsel that the original subpoenas had not been served. Moreover, Olagues waited for approximately two weeks after appellees filed their affidavits to withdraw his motion for contempt. His withdrawal coincidentally came one day after appellees filed their own motion for sanctions and attorney fees. Thus, Olagues' motion was not only unfounded, but under the circumstances also constituted harassment. Olagues' conduct in pursuing a frivolous and harassing motion justified the district court's imposition of Rule 11 sanctions.

B. Quashing of the Second Subpoena on Schmidt and Awarding Attorney Fees in Connection with the Motion to Quash

Olagues next contends that the district court improperly quashed his second subpoena served on Schmidt and improperly awarded Schmidt attorney fees for his motion to quash. Rule 45 allows a district court to quash a subpoena duces tecum if it is "unreasonable and oppressive." Fed. R. Civ. P. 45(b). "We will reverse such an order to quash only for an abuse of discretion." Premium Service Corp. v. Sperry & Hutchinson Company, 511 F.2d 225, 229 (9th Cir. 1975).

The district court did not abuse its discretion. Not only was the information sought by Olagues irrelevant to his case, but it is clear that the subpoena duces tecum was simply a part of an ongoing series of actions designed by Olagues to contest his failure to receive part of the New York fund and to harass those persons who did.

Additionally, the district court's grant of attorney fees to Schmidt was proper. Rule 37(a) (4) (made applicable by Rule 45(d) (1), which incorporates Rule 26(c), which in turn incorporates Rule 37(a) (4)) requires the payment of attorney fees by the nonmoving party unless his "opposition to the motion was substantially justified." Fed. R. Civ. P. 37(a) (4). As previously noted, the subpoena was oppressive and unreasonable. Moreover, the second subpoena was invalid because the required fees were not tendered with service. Thus, Olagues' opposition to the motion was not substantially justified.

C. Award of Attorney Fees and Costs Against Olagues for Frivolous Appeal

Schmidt and Mitchell ask that we award attorney fees and double costs, because Olagues' appeal is frivolous. "Sanctions are appropriate when the result of the appeal is obvious and the arguments of error are wholly without merit." Grimes v. Commissioner, 806 F.2d 1451, 1454 (9th Cir. 1986). While we admonish Olagues for misrepresenting the facts to this panel, we hold that his appeal was not so totally lacking in merit as to warrant an award of sanctions.

AFFIRMED.