Gomes v. American Century Companies, Inc.
Filing
27
ORDER signed by Judge Frank C. Damrell, Jr on 5/14/2010 ORDERING that for the foregoing reasons, defendants' 18 motion for sanctions pursuant to FRCP 11, 28 U.S.C. 1927 and the court's inherent power is DENIED.(Duong, D)
<![CDATA[
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
v. AMERICAN CENTURY COMPANIES, INC.; AMERICAN CENTURY GLOBAL INVESTMENT MANAGEMENT, INC.; JAMES E. STOWERS, JR.; JAMES E. STOWERS, III; JONATHAN S. THOMAS; THOMAS A. BROWN; ANDREA C. HALL; DONALD H. PRATT; GALE E. SAYERS; M. JEANNINE STRANDJORD; TIMOTHY S. WEBSTER; WILLIAM M. LYONS; ENRIQUE CHAN; MARK KOPINSKI; and BRIAN BRADY, Defendants, AMERICAN CENTURY WORLD MUTUAL FUNDS, INC., doing business as AMERICAN CENTURY INTERNATIONAL DISCOVERY FUND, Nominal Defendant. ____________________________/ ----oo0oo---1 NELSON GOMES, individually, derivatively and on behalf of all others similarly situated, Plaintiff, UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA ----oo0oo----
NO. 2:09-cv-02153-FCD/KJM MEMORANDUM AND ORDER
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
This matter is before the court on defendants' motion for sanctions against plaintiff's counsel under Federal Rule of Civil Procedure 11, 28 U.S.C. § 1927, and the courts inherent authority. is DENIED.2 BACKGROUND On August 4, 2009, Nelson Gomes ("plaintiff") initiated this action by filing a complaint that based venue on 28 U.S.C. § 1391 and 18 U.S.C. § 1965, the Racketeer Influenced and Corrupt Organizations Act's ("RICO") venue provision. ("Pl.'s Compl. Plaintiff For the reasons set forth below,1 defendants' motion
["Compl."], filed Aug. 4, 2009 [Docket # 2], ¶ 29.)
asserted claims for violation of RICO, breach of fiduciary duty, negligence, and waste. (Id. ¶ 5.) Plaintiff alleges that
defendants, American Century World Mutual Funds, Inc., its parent companies, directors, and officers, engaged in a pattern of racketeering activity by allowing a mutual fund, which plaintiff had invested in, to invest money in an illegal gambling business. (Id. ¶ 3.) When law enforcement officials began enforcement
proceedings against the illegal gambling business, the market value of plaintiff's mutual fund investment declined. (Id.)
On November 10, 2009, defendants filed a motion to transfer venue. (Defs.' Mtn. to Transfer Venue, filed Nov. 10, 2009 Defendants sought transfer to the Southern
[Docket # 11].)
Because oral argument will not be of material assistance, the court orders this matter submitted on the briefs. E.D. Cal. L.R. 230(g). In defendants' reply brief they move to strike plaintiff's opposition as being beyond the 20 page limit on opposition papers. Defendants' motion is DENIED. 2
2
1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
District of New York, where similar recent disputes between some of the same defendants and plaintiff's counsel had been litigated and decided in defendants' favor. (Defs.' Mem. in Support of
Mtn. to Transfer Venue ["Defs.' Venue Motion"], filed Nov. 10, 2009 [Docket # 12], 1:2-4, 2-4); see McBrearty v. Vanguard Group, Inc., 2009 WL 875220 (S.D.N.Y. April 2, 2009) (Cote, J.), aff'd 353 Fed. Appx. 640 (2d Cir. 2009), petition for cert. filed, 78 U.S.L.W. 3590 (Mar. 30, 2010) (No. 09-1187) (dismissing a similar claim on motion to dismiss for failure to state a claim for lack of proximate causation). In their motion, defendants contended
that the case had no connection with the Eastern District of California other than the fact that the plaintiff resides within the District; defendants also contented that the court lacked personal jurisdiction over several of the defendants. On January
22, 2010, plaintiff filed a notice of voluntary dismissal pursuant to Federal Rule of Civil Procedure ("FRCP") 41(a)(1)(A)(I), closing the case. ruled on by this court. On February 4, 2010, defendants filed a request to reopen the case for the limited purpose of filing a motion for sanctions. (Docket # 16.) The court noted that the request was Defendants' motion was never
procedurally improper but allowed defendants to file a properly noticed motion for sanctions, which they did on March 18, 2010. (Docket # 18.) Defendants assert that they should be entitled to
sanctions for attorneys' fees pursuant to FRCP 11, 28 U.S.C. § 1927, and the court's inherent authority because plaintiff's assertion that venue was proper in the Eastern District of ///// 3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
California was frivolous and done in a bad faith attempt at forum shopping. ANALYSIS I. Rule 11 Sanctions An attorney is subject to Rule 11 sanctions when, inter alia, he presents to the court "claims, defenses, and other legal contentions . . . [not] warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law." R. Civ. P. 11(b)(2). When sanctions are sought by opposing Fed.
counsel, opposing counsel must comply with Rule 11's "safe harbor" provision. See Barber v. Miller, 146 F.3d 707, 710-11
(9th Cir. 1998); Radcliffe v. Rainbow Constr. Co., 254 F.3d 772, 789 (2001) ("[T]he procedural requirements of Rule 11[(c)(2)]'s `safe harbor' are mandatory.") Rule 11's safe harbor provision
provides that a party may not file a motion for sanctions under Rule 11 unless the party against whom sanctions are sought is served with the motion and given 21 days to either withdraw or correct the paper that is the subject of the motion. Civ. Pro. 11(c)(2). Fed. R.
Within the Ninth Circuit, the safe harbor Holgate v. Baldwin, 425 F.3d
provision is strictly enforced.
671, 678 (2005) ("We enforce this safe harbor provision strictly."). Failure to follow the procedure set forth in Rule
11(c)(2) precludes the moving party from obtaining an award of sanctions. Radcliffe, 254 F.3d at 789.
Defendants do not, and cannot, claim that they have met the requirements of Rule 11's safe harbor provision. Rather,
defendants argue that this court retains jurisdiction to award 4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
sanctions under Rule 11 under the circumstances of this case, where the plaintiff has voluntarily withdrawn the action pursuant to Rule 41(a)(1). However, the retention of jurisdiction is
irrelevant to the court's analysis of whether defendants complied with the safe harbor provision. Neither of the cases cited by defendants excuse compliance with Rule 11's safe harbor provision. In Madamba, the defendant
moved for sanctions after summary judgment was entered in their favor during the safe harbor period; the defendant had served the sanction motion on the plaintiff after already filing a motion for summary judgment but before that motion had been ruled on by the court. Madamba v. Certified Grocers California, LTD, 1998 WL In denying the
339685, at *1 (9th Cir. May 12, 1998).3
defendant's motion for sanctions after judgment had been entered the court noted that "sanctions may be imposed after a case has been resolved." Id. at *2 (citing Cooter & Gell v. Hartmarx However, the court neither
Corp., 496 U.S. 384, 393-98 (1990)).
addressed whether sanctions may be entered after a voluntary dismissal nor whether the court may totally disregard Rule 11's safe harbor provision. Indeed, the defendant in Madamba had
complied with the safe harbor provision of Rule 11(c)(2) prior to filing the motion. Similarly unpersuasive is defendants' reliance on Commercial Space Mgmt. Co. v. Boeing Co. 193 F.3d 1074 (1999). In Boeing,
the court addressed whether a district court, after a notice of In defendants' motion for sanctions they directly rely on Madamba, an unpublished Ninth Circuit opinion. In their reply brief, defendants' counsel acknowledges that their reliance on an unpublished opinion, under the circumstances, was not warranted. 5
3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
voluntary dismissal pursuant to Rule 41(a)(1), may determine whether the dismissal is one with or without prejudice. at 1075-76. 193 F.3d
The court held that a notice of voluntary dismissal
divests the court of jurisdiction, and therefore a district court cannot thereafter determine whether the dismissal was with or without prejudice. Id. at 1080. However, in a footnote, the
court cited Cooter & Gell4 for the proposition that a voluntary dismissal does not divest the district court of jurisdiction to impose sanctions. Boeing, 193 F.3d at n. 8. To the extent
Boeing and Cooter & Gell hold that a case can remain open after it has been voluntarily dismissed for purposes of imposing sanctions, neither case concludes that the moving party is relieved of his burden to comply with Rule 11's safe harbor provision. Furthermore, the Ninth Circuit has explicitly provided that the safe harbor provision is to be strictly enforced. Radcliffe, 254 F.3d at 789. See
Under Rule 11, if a plaintiff
voluntarily dismisses the action during the safe harbor period they will not be subject to monetary sanctions. Pro. 11(c)(2). Fed. R. Civ.
To allow sanctions here, where plaintiff filed a
voluntary dismissal prior to the sanctions motion being noticed, Cooter & Gell did "conclude that petitioner's voluntary dismissal did not divest the District Court of jurisdiction to consider respondents' Rule 11 motion." 496 U.S. at 398. However, Cooter & Gell was decided before the 1993 amendments to Rule 11 which inserted the safe harbor provision. While the Supreme Court has not directly overturned its holding, several district courts have concluded that the 1993 amendments supersede the Court's holding in Cooter & Gell, as it relates to voluntary dismissals. See e.g., Hockley by Hockley v. Shan Enter. Ltd. P'ship, 19 F. Supp. 2d 235, 240 (N.J. 1998); Photocircuits Corp. v. Marathon Agents, Inc., 162 F.R.D. 449, 452 (E.D. N.Y. 1995); Morroni v. Gunderson, 169 F.R.D. 168, 171 (M.D. Fla. 1996). 6
4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
would be contrary to the spirit of Rule 11.
As such, defendants
motion for sanctions pursuant to Rule 11 is DENIED. II. Sanctions Pursuant to § 1927 and the Court's Inherent Authority Section 1927 allows the court to award fees against "any attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously." 28 U.S.C. § 1927. This section
is not specific to any statute, but applies to any civil suit in federal court. Hyde v. Midland Credit Mgmt., Inc., 567 F.3d Further, the statute "explicitly Id.; F.T.C.
1137, 1141 (9th Cir. 2009).
provides for remedies against offending attorneys."
v. Alaska Land Leasing, Inc., 799 F.2d 507, 510 (9th Cir. 1986) (noting that § 1927 does not authorize recovery from a party, but "only from an attorney or otherwise admitted representative of a party") (emphasis in original) (internal quotations and citations omitted). "The filing of a complaint may be sanctioned pursuant
to Rule 11 or a court's inherent power, but it may not be sanctioned pursuant to § 1927." In re Keegan Mgmt. Co., Sec.
Lit., 78 F.3d 431, 436 (9th Cir. 1996). Attorneys fees under § 1927 are appropriate if an attorney's conduct is in bad faith; recklessness satisfies this standard. B.K.B. v. Maui Police Dept., 276 F.3d 1091, 1107 (9th Cir. 2002); Barber, 146 F.3d at 711 ("An award of sanctions under 28 U.S.C. § 1927 or the district court's inherent authority requires a finding of recklessness or bad faith."). The Ninth Circuit has
also required a finding of subjective bad faith, "which is present when an attorney knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for the purpose 7
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
of harassing an opponent."
B.K.B., 276 F.3d at 1107 (emphasis in
original) (quoting In re Keegan, 78 F.3d at 436). Moreover, the Ninth Circuit has cautioned that "[s]anctions should be reserved for the `rare and exceptional case where the action is clearly frivolous, legally unreasonable or without legal foundation, or brought for an improper purpose.'" Primus Auto. Fin. Servs.,
Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir. 1997) (quoting Operating Eng'rs Pension Trust v. A-C Co., 859 F.2d 1336, 1344 (9th Cir. 1988)). The court also has the inherent power to issue sanctions in order "to protect the due and orderly administration of justice and maintain the authority and dignity of the court." (internal quotations and citation omitted). Id. at 648
These sanctions may
be issued when the party has acted "in bad faith, vexatiously, wantonly, or for oppressive reasons" and may take the form of attorneys' fees. Id. Before awarding such sanctions, however,
"the court must make an explicit finding that counsel's conduct `constituted or was tantamount to bad faith.'" Id. (quoting
Roadway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980)). A finding of bad faith is supported by the same standard required under § 1927. See id. As an initial matter, defendants are precluded from seeking sanctions under § 1927 because the conduct that is the subject of defendants' sanctions motion is plaintiff's filing of the complaint in the Eastern District of California. The Ninth
Circuit has made it clear that "[t]he filing of a complaint . . . may not be sanctioned pursuant to § 1927" because § 1927 only addresses the multiplication of proceedings. 8 In re Keegan Mgmt.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Co., Sec. Lit., 78 F.3d 431, 436 (9th Cir. 1996) ("Because the section authorizes sanctions only for the `multipli[cation of] proceedings,' it applies only to unnecessary filings and tactics once a lawsuit has begun." (alteration in original)); Matter of Yagman, 796 F.2d 1165, 1187 (9th Cir.) ("Section 1927 does not apply to initial pleadings, since it addresses only the multiplication of proceedings. It is only possible to multiply or prolong proceedings after the complaint is filed."), amended by, 803 F.2d 1085 (9th Cir. 1986). While defendants allege a pattern
of forum shopping by plaintiff's counsel, the complaint in this action was the first lawsuit filed between this particular plaintiff and these particular defendants. As such, plaintiff's
complaint cannot be the basis of § 1927 sanctions because it has not "multiplie[d] the proceedings." 28 U.S.C. § 1927.
Additionally, defendants' motion for sanctions pursuant to both § 1927 and the court's inherent power must be denied because defendant have not demonstrated the requisite bad faith by showing that plaintiff's counsel knowingly or recklessly raised a frivolous argument. U.S. at 767. See B.K.B., 276 F.3d at 1107; Piper, 447
In arguing that plaintiff's counsel knowingly or
recklessly filed a frivolous complaint the defendants rely heavily on what they term a "warning" from Judge Armstrong of California's Northern District in Seidl v. Am. Century Cos., Inc., No. 08-cv-04117 (N.D. Cal. Aug 28, 2008). Seidl was an
action very similar to the present case and involved the same plaintiff's counsel (acting on behalf of a different plaintiff), many of the same defendants, and the same claims. The venue
allegation filed in the Seidl action is an exact replica of the 9
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
venue allegation in the complaint in this action.
(Compare
Compl. ¶ 29, with Decl. of Benjamin H. Kleine ["Kleine Decl."], filed March 18, 2010 [Docket #20], Ex. A ["Seidl Compl."], ¶ 23.) Judge Armstrong, acting sua sponte, raised the issue of venue and ordered that the parties file briefs as to whether or not the court should transfer the case to a different venue. Decl., Ex. B.) (Kleine
In the alternative, Judge Armstrong stated that
"plaintiff may withdraw this matter and re-file it in a district more closely related to the events giving rise to this matter." (Id.) The question of venue was not litigated further as the
plaintiff voluntarily dismissed the action and then re-filed it in the Southern District of New York. Defendants argue that the fact that Judge Armstrong sua sponte issued an order questioning whether venue was proper in Seidl shows that plaintiff's counsel in this case either knowingly or recklessly filed the complaint in a district they knew was improper. This argument is not persuasive. As the
plaintiff voluntarily dismissed the Seidl action in the Northern District before the venue issue could be litigated and determined by the court, plaintiff's counsel was not on notice that their choice of venue was frivolous, but, at most, that it may not have been valid. (Defs.' Mem. in Support of Motion for Sanctions,
filed March 28, 2010 [Docket # 19], 12:5-7) ("Plaintiff's counsel, by virtue of Judge Armstrong's October, 2008 sua sponte order, knew venue was highly questionable and, more likely, improper in California."). While plaintiff's counsel may
have been aware that their argument as to venue was unlikely to succeed, "[s]anctions should be reserved for the `rare and 10
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
exceptional case where the action is clearly frivolous, legally unreasonable or without legal foundation." 649; cf. Fed. R. Civ. P. 11(b)(2). exceptional case.5 Batarse, 115 F.3d at
This is not such a rare and
As such, defendants motion for sanctions
pursuant to 28 U.S.C. § 1927 and the court's inherent power is DENIED.6 CONCLUSION For the foregoing reasons, defendants motion for sanctions pursuant to FRCP 11, 28 U.S.C. § 1927, and the court's inherent power is DENIED. IT IS SO ORDERED. DATED: May 14, 2010 FRANK C. DAMRELL, JR. UNITED STATES DISTRICT JUDGE
While not directly mentioned in defendants' motion for sanctions, in defendants' motion to transfer venue they relied heavily on a Ninth Circuit opinion which limits the use of RICO's venue provision to situations in which the plaintiff shows that there is "no other district in which a court will have personal jurisdiction over all of the alleged co-conspirators." Butcher's Union Local No. 498 v. SDC Inv., Inc., 788 F.2d 535, 539 (9th Cir. 1986). While the Ninth Circuit's interpretation of RICO's jurisdictional and venue statute is binding on this court, other circuit courts have reached somewhat different conclusions. See Republic of Panama v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935, 942 (11th Cir. 1997). Sanctions should not be granted where a party is arguing for modification or reversal of existing law. As such, an argument that sanctions should be granted because plaintiff's choice of venue was improper under Ninth Circuit precedent must be denied. In plaintiff's opposition they seek to recover expenses and attorney fees incurred in defending against defendants' motion for sanctions. "If warranted, the court may award to the prevailing party the reasonable expenses, including attorney's fees, incurred for the motion." Fed. R. Civ. P. 11(c)(2). The court finds that under the circumstances of this case such an award is not warranted. 11
6
5
]]>
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?
