Nilon v. Natural-Immunogenics Corp et al, No. 3:2012cv00930 - Document 126 (S.D. Cal. 2015)
Court Description: ORDER denying defendant's 122 Motion for Sanctions. Signed by Magistrate Judge Bernard G. Skomal on 10/28/15. (kas)
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Nilon v. Natural-Immunogenics Corp et al Doc. 126 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 SOUTHERN DISTRICT OF CALIFORNIA 9 ANDREW NILON, individually and ) ) on behalf of all other similarly situated, ) 11 ) Plaintiff, ) 12 ) vs. ) 13 ) NATURAL-IMMUNOGENICS ) 14 CORP.; and DOES 1-25, Inclusive, ) ) 15 Defendant. ) ) 16 ) ) 17 ______________________________ ) 10 Case No: 3:12-cv-00930-LAB (BGS) ORDER DENYING DEFENDANT’S MOTION FOR SANCTIONS [ECF No. 123] 18 19 20 I. Introduction and Procedural Background On May 22, 2015, the Honorable Larry A. Burns issued an Order of Dismissal in 21 this case and a Clerk’s Judgment was entered that same day dismissing Plaintiff 22 Giovanni Sandoval’s claims with prejudice and dismissing class claims without 23 prejudice. [ECF No. 120-121.] The Order of Dismissal was unique in that it denied a 24 request by Defendant for sanctions under against Plaintiff’s counsel and law firm, but 25 also stated “Natural Immunogenics may bring the same motion before Magistrate 26 Judge Bernard G. Skomal”. [ECF No. 120 at 2:6-7.] 27 The “same motion” to which Judge Burns referred in his Dismissal Order was 28 1 12cv930 LAB (BGS) Dockets.Justia.com 1 Defendant’s request to sanction the law firm of Plaintiff’s counsel, Newport Trial 2 Group, and Plaintiff’s attorney, Ryan Ferrell. The sanctions’ request was based on 3 allegations of bad faith, improper conduct and recklessness by Plaintiff’s counsel 4 during discovery and over the course of litigation. [ECF No. 119 at 5:14-7:21, 9:1-9.] 5 The sanctions’ request was not, however, a proper motion under Rule 11 because it 6 was made in a reply brief in response to Judge Burns’ tentative order to dismiss the 7 case. (ECF No. 119; see Fed. R. Civ. P. 11(c)(2) requiring a motion for sanctions to be 8 “made separately from any other motion.”; see also Fed. R. Civ. P. 11 advisory 9 committee’s note stating ”requests for sanctions must be made as a separate motion, 10 i.e. not simply included as an additional prayer for relief contained in another 11 motion.”). In the reply brief, defense counsel argued that Judge Burns had the authority to 12 13 sanction Plaintiff’s counsel and law firm under: (1) Rule 11; (2) the Court’s inherent 14 powers; and (3) 28 U.S.C. § 1927. Specifically, Defendant requested sanctions for: (1) 15 Plaintiff counsel’s failure to conduct a reasonable inquiry into Plaintiff Giovanni 16 Sandoval’s residency in California before filing a Second Amended Complaint; (2) 17 making a false statement regarding Sandoval’s residency in a pleading; (3) failing to 18 notify the Court upon learning of Sandoval’s residency in Arizona; and (4) refusing to 19 provide Sandoval’s contact information during discovery. Defendant contended that 20 had Judge Burns known of Sandoval’s residency in Arizona, he would have denied 21 Plaintiff’s motion to substitute Plaintiff Sandoval for Plaintiff Nilon and this case 22 would have been dismissed in August 2014. [ECF No. 119 at 5:19-6:2.] From this 23 chain of events, Defendant argued Plaintiff’s counsel’s conduct was indicative of bad 24 faith and multiplied the proceedings vexatiously. [ECF No. 119 at 4:12-18; 5:6-11; 25 9:3-9.] 26 /// 27 /// 28 /// 2 12cv930 LAB (BGS) 1 2 3 4 5 6 7 8 9 10 11 12 Judge Burns denied Defendant’s sanctions’ request without prejudice explaining: “The Court issued a tentative order vacating class certification and dismissing this case without prejudice. (Docket no. 117.) The Plaintiff filed a response, agreeing with the Court's tentative order. (Docket no. 118) ("Plaintiff is in agreement with the Court that the best course of action at this time is to decertify the class action, dismiss Plaintiff’s claims with prejudice, and dismiss the class claims without prejudice."). Natural-Immunogenics filed a reply, agreeing the case should be dismissed, but arguing the Court should enter sanctions against Plaintiff's counsel....Because Natural-Immunogenics also contributed to the delay in this case, the Court is not inclined to issue monetary sanctions. The Court ordered the parties "to schedule a deposition of Sandoval forthwith." (Docket no. 62.) Both parties ignored that warning. Had Natural-Immunogenics acted with more diligence, it could have avoided the expenses it seeks to recover.” [ECF No. 120 1:16-2:5.] On June 24, 2015, Defendant filed a separate motion for sanctions to the 13 attention of Judge Skomal. [ECF No. 122.] On July 17, 2015, Plaintiff’s counsel filed 14 an opposition brief. [ECF No. 123.] Defendant filed a reply in support of its 15 sanctions’ motion on July 24, 2015. [ECF No. 124.] For the reasons stated herein, 16 Defendant’s Motion for Sanctions is DENIED. 17 II. Parties’ Arguments 18 A. Nilon’s Motion for Sanctions 19 In the sanctions motion at issue, as in the previously denied request for 20 sanctions, Defendant argues Plaintiff’s counsel should have known that substituted 21 Plaintiff, Giovanni Sandoval, was not a resident of San Diego County, California, but a 22 resident of Arizona, and therefore failed under Rule 11 to conduct a reasonable inquiry 23 before filing the Second Amended Complaint (“SAC”) asserting a California class. 24 [ECF No. 122-1 at15:10-17:22.] Defendant also argues: (1) Plaintiff’s SAC was false, 25 frivolous and improper in that its false statements regarding residency unnecessarily 26 prolonged this litigation; and (2) Plaintiff included false statements in his motion to 27 substitute class representative, his opposition to Defendant’s motion to strike and his 28 response to Judge Burns’ tentative Order, [ECF No. 122-1 at 6:12-710; 16:4-17:1.] 3 12cv930 LAB (BGS) 1 Defendant requests monetary sanctions under Rule 11, 28 U.S.C. § 1927, and the 2 Court’s inherent power for an alleged pattern of conduct during this litigation that 3 vexatiously multiplied proceedings. [ECF No. 122-1 at 18:13-25:19.] Specifically, 4 Defendant contends Plaintiff’s counsel failed to disclose Sandoval’s address and name 5 as required by Rule 26(a)(1); failed to respond to informal requests for Sandoval’s 6 name and address; asserted privilege objections at Sandoval’s deposition in order to 7 allegedly conceal the circumstances surrounding Sandoval’s entrance as a plaintiff in 8 this case; and refused to stipulate to basic facts collected during Sandoval’s deposition. 9 [ECF No. 122-1 at 8:6-10:24.] 10 B. Plaintiff’s Opposition 11 Plaintiff’s counsel opposes Defendant’s motion for sanctions on the following 12 grounds: (1) Defendant did not comply with Rule 11's safe-harbor requirements; (2) 13 Defendant has failed to demonstrate a violation of Rule 11 on the part of Plaintiff’s 14 counsel; (3) Plaintiff’s counsel’s pleadings were not improper or false; (4) the 15 allegedly false statement concerning Plaintiff Sandoval’s residency in California did 16 not increase litigation costs; (5) Defendant’s sanctions motions is stale; (6) there is no 17 need for the Court to use its inherent power to sanction because Judge Burns’ 18 dismissal of Plaintiff’s Second Amended Complaint is equivalent to terminating 19 sanctions; and (7) Attorney Ryan Ferrell’s conduct was neither reckless, nor in bad 20 faith; therefore, sanctions under section 1927 or the Court’s inherent power are not 21 warranted. 22 III. Discussion 23 Defendant requests monetary sanctions under Rule 11, 28 U.S.C. § 1927, and the 24 Court’s inherent power. The various requirements for an award of sanctions under 25 each of these three authorities is discussed seriatim herein. 26 A. Rule 11 of the Federal Rules of Civil Procedure 27 Rule 11 authorizes the imposition of deterrent sanctions and provides as follows: 28 4 12cv930 LAB (BGS) 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 (b) Representations to the Court. By presenting to the court a pleading, written motion, or other paper--whether by signing, filing, submitting, or later advocating it--an attorney or unrepresented party certifies that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances: (1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; (2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law; (3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on belief or a lack of information. c) Sanctions. (1) In General. If, after notice and a reasonable opportunity to respond, the court determines that Rule 11(b) has been violated, the court may impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation. Absent exceptional circumstances, a law firm must be held jointly responsible for a violation committed by its partner, associate, or employee. (2) Motion for Sanctions. A motion for sanctions must be made separately from any other motion and must describe the specific conduct that allegedly violates Rule 11(b). The motion must be served under Rule 5, but it must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets. If warranted, the court may award to the prevailing party the reasonable expenses, including attorney's fees, incurred for the motion. (3) On the Court's Initiative. On its own, the court may order an attorney, law firm, or party to show cause why conduct specifically described in the order has not violated Rule 11(b). (4) Nature of a Sanction. A sanction imposed under this rule must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated. The sanction may include nonmonetary directives; an order to pay a penalty into court; or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of part or all of the reasonable attorney's fees and other expenses directly resulting from the violation. (5) Limitations on Monetary Sanctions. The court must not impose a monetary sanction: (A) against a represented party for violating Rule 11(b)(2); or 28 5 12cv930 LAB (BGS) (B) on its own, unless it issued the show-cause order under Rule 11(c)(3) before voluntary dismissal or settlement of the claims made by or against the party that is, or whose attorneys are, to be sanctioned. 1 2 (6) Requirements for an Order. An order imposing a sanction must describe the sanctioned conduct and explain the basis for the sanction. 3 4 5 6 7 (d) Inapplicability to Discovery. This rule does not apply to disclosures and discovery requests, responses, objections, and motions under Rules 26 through 37. See Fed.R.Civ.P. 11.(b)-(c). The United States Magistrate Judge has authority to determine any pretrial 8 motions, including discovery motions, other than the dispositive motions listed in 28 9 U.S.C. § 636(b)(1)(A).1 See Civil Local Rule 72.1(b). Given the authority conferred 10 to a magistrate judge to determine discovery motions, it is likely that the District Court, 11 in remarking that Plaintiff might consider bringing a sanctions motion before Judge 12 Skomal, felt the court most familiar with the parties’ behavior in discovery would be 13 the most appropriate to rule on a sanctions motion based in large part on conduct 14 exhibited during discovery. However, under section (d), Rule 11 sanctions cannot be 15 imposed based on alleged improprieties in discovery because Rules 26 through 37 of 16 the Federal Rules of Civil Procedure set forth the available sanctions for discovery 17 abuses. See e.g. Patelco Credit Union v. Sahni, 262 F.3d 897, 913 (9th Cir. 2011) 18 (explaining “Rule 11(d) specifically exempts discovery motions and objections from 19 its procedural requirements.”); see also Christian v. Mattel, 286 F.3d 1118, 1131 (9th 20 Cir. 2002) (reversing imposition of Rule 11 sanctions because the award was based, in 21 part, on discovery abuse). In light of Rule11’s express instruction that sections (a), (b) 22 and (c) have no applicability to discovery issues, the Court DENIES Defendant’s 23 1 24 25 26 27 28 28 U.S.C. § 636(b)(1)(A) states: “a judge may designate a magistrate judge to hear and determine any pretrial matter pending before the court, except a motion for injunctive relief, for judgment on the pleadings, for summary judgment, to dismiss or quash an indictment or information made by the defendant, to suppress evidence in a criminal case, to dismiss or to permit maintenance of a class action, to dismiss for failure to state a claim upon which relief can be granted, and to involuntarily dismiss an action. A judge of the court may reconsider any pretrial matter under this subparagraph (A) where it has been shown that the magistrate judge’s order is clearly erroneous or contrary to law.” 6 12cv930 LAB (BGS) 1 sanctions motion under Rule 11 where it is based on discovery; namely, (1) failure to 2 disclose Sandoval’s address and name as required by Rule 26(a)(1); (2) failure to 3 respond to informal requests for Sandoval’s name and address; (3) asserting privilege 4 objections at Sandoval’s deposition; and (4) refusing to stipulate to facts collected 5 during Sandoval’s deposition. Defendant should have addressed the issues it had with 6 Plaintiff’s counsel’s behavior with respect to discovery issues through the use of Rules 7 26(g), 30(d) or 37 of the Federal Rules of Civil Procedure, but it did not. 8 9 Moreover, Defendant’s grievances with respect to Plaintiffs’ counsel’s conduct during discovery should have been raised at the time they occurred; these objections 10 are inexplicably late and are DENIED. Judge Skomal’s chambers rules require 11 discovery disputes to be brought to the court’s attention within 30 days of an impasse 12 absent good cause. In this case, the Court was never notified about disputes with 13 respect to the parties’ Rule 26 disclosures or problems during and after Sandoval’s 14 deposition. As Judge Burns noted in his Order, Defendant “contributed to the delay in 15 this case ... [h]ad Natural Immunogenics acted with more diligence, it could have 16 avoided the expenses it seeks to recover.” [ECF No. 120 at 2:1-5.]; see also Fed. R. 17 Civ. P. 11 advisory committee’s note stating that the purpose of Rule 11 is to deter and 18 “should not provide compensation for services that could have been avoided by an... 19 earlier challenge...”. 20 With respect to Defendant’s contention that Plaintiff’s counsel and his law firm 21 should be also sanctioned under Rule 11 for: (1) failure to conduct a reasonable inquiry 22 before filing the SAC and (2) including false statements in the SAC, the motion to 23 substitute class representative, the opposition to Defendant’s motion to strike and the 24 response to Judge Burns’ tentative Order, the Court DENIES Defendant’s motion for 25 Rule 11 sanctions. As explained expressly in the text of Rule 11 itself, the nature of 26 this type of sanction is “limited to what suffices to deter repetition of the conduct or 27 comparable conduct by others similarly situated.” Fed. R. Civ.P. 11(c)(4). The record 28 reflects that Judge Burns has already imposed an appropriate sanction with deterrent 7 12cv930 LAB (BGS) 1 effect by dismissing Plaintiff Giovanni Sandoval’s claims with prejudice and 2 dismissing class claims without prejudice. No further sanctions under Rule 11 are 3 warranted. 4 In its reply brief, Defendant argues that Judge Burns found several Rule 11 5 violations as referenced in the District Court’s tentative order2 to vacate class 6 certification and dismiss; therefore, this Court’s only task is to determine the amount of 7 monetary sanctions to award. [ECF No. 124 at 6.] Defendant is incorrect. In his 8 Order of Dismissal, Judge Burns neither awarded monetary sanctions to Defendant, nor 9 referred the present motion for report and recommendation on an amount of monetary 10 sanctions to award. [ECF No. 120.] To the contrary, in the dismissal order Judge 11 Burns clearly denied Defendant’s request for monetary sanctions. Id. at 2:5. 12 Further, it is clear that Defendant’s sanction motion was not referred because 13 nowhere in the document does it state that the matter was referred for proposed 14 findings of fact and recommendation. Id. at 2:6. The District Court is expert in the 15 proper way to refer matters to the Magistrate Judge. See Judge Burn’s previous order 16 of referral at ECF No. 75 at 1:22-24. The current sanctions motion is directed to this 17 Court for its decision. Moreover, regardless of whether Judge Burns found a Rule 11 18 violation or this Court finds a violation, the court is not required to award monetary 19 sanctions under the Rule. The language of the Rule is not mandatory, it is 20 discretionary and expressly provides that “the court may impose an appropriate 21 sanction.” See Fed. R. Civ. P. 11(c) (emphasis added). Indeed, the advisory 22 committee’s note instructs that “[t]he court has significant discretion in determining 23 what sanctions, if any, should be imposed for a violation....” Fed. R. Civ. P. 11 24 advisory committee’s note (emphasis added). This Court has carefully reviewed the 25 parties’ briefing, exhibits and the record before it and hereby determines that the 26 appropriate sanctions to deter Plaintiff’s counsel, i.e. decertification and dismissal, 27 28 2 See ECF No. 117 for Judge Burns tentative order dated May 18, 2015. 8 12cv930 LAB (BGS) 1 have already been meted out. As stated above, Defendant’s motion for Rule 11 2 sanctions is DENIED. (See also Fed. R. Civ. P. 11 advisory committee’s note 3 explaining: “The rule does not attempt to enumerate ... what sanctions would be 4 appropriate in the circumstances; but for emphasis, it does specifically note that a 5 sanction may be nonmonetary....”). 6 B. Sanctions Pursuant to 28 U.S.C. 1927 7 Section 1927 of the United States Code entitled “Counsel’s liability for 8 9 excessive costs” provides as follows: “Any attorney or other person admitted to conduct cases in any court of the 10 United States or any Territory thereof who so multiplies the proceedings in any 11 case unreasonably and vexatiously may be required by the court to satisfy 12 personally the excess costs, expenses, and attorneys’ fees reasonably incurred 13 because of such conduct.” 14 15 28 U.S.C. 1927 Accordingly, the statute authorizes an award of attorney’s fees where an attorney 16 has multiplied the proceedings in a case to increase costs unreasonably and 17 vexatiously. The Ninth Circuit has explained unreasonable and vexatious conduct as 18 follows: “Section 1927 sanctions must be supported by a finding of subjective bad 19 faith. Bad faith is present when an attorney knowingly or recklessly raises a frivolous 20 argument, or argues a meritorious claim for the purpose of harassing an opponent.” In 21 re Keegan Management Co., Sec. Litig., 78 F.3d 431, 436 (9th Cir. 1996)(citations and 22 internal quotations omitted). 23 In keeping with its statutory purpose to reduce excess costs, any amount 24 awarded under Section 1927 must reflect fees that were actually and reasonably 25 incurred as a result of the misconduct that multiplies the proceedings. Matter of 26 Yagman, 796 F.3d 1165, 1184 (9th Cir. 1986). 27 The Court finds that sanctions under Section 1927 are not appropriate under the 28 9 12cv930 LAB (BGS) 1 circumstances of this case because Defendant has not proven the first requirement of 2 the statute; namely that misconduct by Plaintiff’s counsel multiplied the proceedings in 3 this case. See Gregory P. Joseph, Sanctions: the Federal Law of Litigation Abuse 4 §23(A)(1) (4th Ed. Supp. 2012) (explaining “the four elements prerequisite to the 5 imposition of sanctions under § 1927 are: (1) multiplication of proceedings; (2) 6 unreasonably and vexatiously; (3) thereby increasing the cost of the proceedings; (4) 7 with bad faith or with intentional misconduct.”). A review of the entire record 8 demonstrates that this case has been prolonged due to the actions of both Defendant’s 9 counsel and Plaintiff’s counsel. If, as Judge Burns’ noted in his Order of Dismissal, 10 defense counsel had been diligent early on in deposing Plaintiff before November 3, 11 2014, (as originally ordered by the Court) instead of waiting more than five months 12 after that deadline to do so on April 20, 2015, some of the filings which Defendant 13 now characterizes as excess may have been avoided, or at the very least, conducted at 14 an earlier point in time in order to resolve this case. The Court will not reward 15 defendant’s counsel with attorney’s fees when its failures also contributed, in 16 significant part, to the delays in this case. Accordingly, Defendant’s motion for 17 sanctions under Section 1927 is DENIED. 18 C. The Court’s Inherent Power to Sanction 19 The Supreme Court in Chambers v. Nasco, Inc., 501 U.S. 32, 43 (1991), has 20 explained that the court has a power to sanction that is “governed not by rule or statute 21 but by the control necessarily vested in courts to manage their own affairs so as to 22 achieve the orderly and expeditious disposition of cases.” Id. Inherent powers are to 23 be “exercised with restraint and discretion”. Id. at 44. Furthermore, the Court’s 24 inherent power requires a finding of bad faith for an award of attorney’s fees. Id. at 25 45-50; see also Fink v. Gomez, 239 F.3d 989 (9th Cir. 2001)(“bad faith is required for 26 sanctions under the Court’s inherent power.”) 27 As noted above, the Supreme Court advises that a court must “exercise caution 28 10 12cv930 LAB (BGS) 1 in invoking its inherent power” and has explained that court “ordinarily should rely on 2 the Rules rather than the inherent power” to impose sanctions. Id. at 50 (stating that “if 3 in the informed discretion of the court, neither the statute nor the Rules are up to the 4 task, the Court may safely rely on its inherent power.”). 5 The Court has reviewed the parties’ briefing as well as the record in this case 6 and declines to exercise its inherent power to sanction Plaintiff’s counsel for issues that 7 could have been readily addressed by the existing Rules of Federal Civil Procedure if 8 they been raised in context and in a timely manner. Accordingly, Defendant’s motion 9 for sanctions under this Court’s inherent power is DENIED. 10 11 IV. Conclusion This Court has carefully considered the parties’ briefing, exhibits and the record 12 in this case and hereby determines that the decertification and dismissal previously 13 ordered by Judge Burns was an appropriate sanction to deter Plaintiff’s counsel under 14 Rule 11. Accordingly Defendant’s motion for sanctions under Rule 11 is DENIED. It 15 is further ordered that Defendant’s motion is under 28 U.S.C. § 1927 is DENIED for 16 failure to establish the prerequisite element that Plaintiff’s counsel’s conduct 17 multiplied proceedings. Finally, it is ordered that Defendant’s motion for sanctions 18 pursuant to the Court’s inherent power is DENIED as unwarranted in light of the 19 sanctions already imposed and the existence of various rules currently in place to 20 address the conduct complained of by Defendant. 21 DATED: October 28, 2015 22 23 24 Hon. Bernard G. Skomal U.S. Magistrate Judge United States District Court 25 26 27 28 11 12cv930 LAB (BGS)
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