Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

R. Prasad Industries v. Flat Irons Environmental Solutions Corporation

United States District Court, D. Arizona

September 23, 2014

R. Prasad Industries, Plaintiff,
v.
Flat Irons Environmental Solutions Corporation, et al., Defendants.

ORDER

JAMES A. TEILBORG, Sr., District Judge.

Pending before the Court is Plaintiff R. Prasad Industries' ("Prasad") Motion for 28 U.S.C. § 1927 Sanctions (Doc. 89) against Defendants Flat Irons Environmental Solutions Corporation, Gary Miller, Jane Doe Miller, Robert Carlile, and Jane Doe Carlile (collectively "Defendants") and their counsel, Frederic M. Douglas ("Mr. Douglas") related to Defendants' filing of the First Amended Answer, Counterclaims, Cross-claims, and Jury Demand ("FAACC") (Doc. 55). Also pending is non-parties Franklin Thomas Hovore, Powers & Hovore PLLC, and Hovore Law PLLC's (collectively, "Hovore") Motion for Entry of Judgment under Rule 54(b) (Doc. 85) and Motion for 28 U.S.C. § 1927 Sanctions (Doc. 84) against Defendants and Mr. Douglas. Each motion is fully briefed. The Court now rules on the motions.

I. BACKGROUND

Prasad brought the Complaint (Doc. 1) against Defendants alleging a breach of contract (and related claims) stemming from the failed purchase of large quantities of fertilizer. On or about November 5, 2012, Prasad hired Hovore to pursue its legal remedies and Hovore drafted and mailed a demand letter to Defendants. ( Id. ¶ 67). Among other things, the demand letter opines that Defendants' actions constituted a "criminal act" and states that if the $525, 000 is not immediately returned, Prasad and the Guyana consulate will "jointly file a criminal action against [Defendants] with the Attorney General of Arizona." ( Id. at Ex. CC). After Defendants failed to respond to the demand letter, this litigation commenced on December 30, 2012 when, on behalf of Prasad, Hovore filed the Complaint (Doc. 1) against Defendants.

The Complaint included a claim under the civil portion of the Arizona Racketeering statute, Ariz. Rev. Stat. Ann. § 13-2314.04 (West 2013). On January 17, 2013, Prasad served a letter and a copy of the Complaint to the Arizona Attorney General's office (Doc. 14; Doc. 55 at Ex. 1), pursuant to Subsection H of the Arizona Racketeering statute.[1]

Defendants allege that on February 14, June 11, and June 14, 2013, Hovore communicated to Mr. Douglas that Hovore had been and intended to further communicate with the Arizona Attorney General's office regarding potential criminal charges against Defendants. (Doc. 55 at 37-38, ¶¶ 29-32). On June 21, 2013, Defendants filed their original Answer, Counterclaims, and Jury Demand (Doc. 35) and served the pleading on Hovore with "Summons for Third-Party Defendants" (Docs. 36-40). The Counterclaim portion of Defendants' pleading contained four counts alleging that Prasad and Hovore extorted Defendants, abused the judicial process, and intentionally inflicted emotional distress on Defendants by "threating" to notify the Arizona Attorney General of Defendants' alleged criminal actions and acting on those "threats." (Doc. 35). Because of Defendants' attempt to inject Prasad's counsel, Hovore, into the proceedings as a party potentially adverse to Prasad, Hovore was forced to severely limit its representation of Prasad until the "counterclaims" could be resolved. As a result, Prasad hired independent counsel to assist with its representation and Hovore hired its own counsel.

Prasad and Hovore both filed Motions to Dismiss under Rules 12(b)(1), (5), and (6), and to Strike Defendants' original Answer and Counterclaims. (Docs. 43-44, 48). These motions explained the numerous jurisdictional, factual, and legal deficiencies of Defendants' "counterclaims." Defendants did not file a Response to Prasad and Hovore's motions. However, on August 2, 2013, Defendants filed the First Amended Answer, Counterclaims, Cross-claims, and Jury Demand ("FAACC") (Doc. 55) and served the pleading on Hovore with "Summons for Third-Party Defendants" (Docs. 57-58, 60-63). In the counterclaims and cross-claims portion of the FAACC, Defendants added a fifth count alleging the "interstate transmission of extortionate threats" in violation of 18 U.S.C. § 875(d). (Doc. 55 at 55). Moreover, the only significant change in the original four claims was that, to preserve complete diversity, the original four counts were now pleaded by only the California-residing Carlile Defendants and not also the Arizona-residing defendants (Flat Irons and the Miller Defendants).[2] Prasad and Hovore filed Rule 12(b)(1) and 12(b)(6) Motions to Dismiss and Rule 12(e) and 12(f) Motions to Strike that were substantially similar to their original motions. (Docs. 64, 68). Hovore also filed a Motion for Sanctions pursuant to 28 U.S.C. § 1927. (Doc. 68).

In its December 17, 2013 Order (Doc. 83), the Court dismissed the "counterclaims" against Prasad on jurisdictional grounds without prejudice. The Court dismissed the "counterclaims" against Hovore with prejudice because, among other reasons, Hovore was not a proper party to this litigation. The Court did not reach the merits of Prasad and Hovore's Rule 12(b)(6) motions. Additionally, the Court denied Hovore's motion for 28 U.S.C. § 1927 sanctions and Prasad's request for attorneys' fees without prejudice and instructed Hovore and Prasad to refile the requests as separate motions formatted according to the guidelines in LRCiv 54.2.

Now, Hovore and Prasad have both refiled their requests as the instant motions for sanctions under 28 U.S.C. § 1927, or, alternatively, under the Court's inherent power or A.R.S. § 12-349. (Docs. 85, 89). Additionally, Hovore seeks a Rule 54(b) entry of final judgment on the dismissal of Defendants' "counterclaims" against them. (Doc. 84).

II. HOVORE'S MOTION FOR 54(b) JUDGMENT

In Defendants' FAACC (Doc. 55), Defendants included claims against Hovore alleging that during Hovore's representation of Prasad in this litigation, Hovore abused process and attempted to extort Defendants. Upon motion to dismiss by Hovore, the Court dismissed Defendants' "counterclaims" against Hovore with prejudice. Although the instant litigation between Prasad and Defendants continues, there are no pending claims by or against Hovore. Consequently, Hovore now moves for entry of final judgment on Defendants' claims under Rule 54(b). (Doc. 85).

Defendants' object and argue that "[a] dismissal for lack of subject matter jurisdiction must be without prejudice" because the dismissal did not resolve the merits of the underlying claims.[3] (Doc. 92 at 4-5). Defendants' argument is a red herring. Whether the Court dismissed Defendants' claims against Hovore with or without prejudice has no bearing on Hovore's Motion for Entry of Judgment under Rule 54(b) (Doc. 85). Defendants make no other specific argument against entering judgment under Rule 54(b). ( See Doc. 92).

Rule 54(b) provides that when more than one claim for relief is presented in an action, or when multiple parties are involved, the district court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties "only if the court expressly determines that there is no just reason for delay." Fed.R.Civ.P. 54(b). Judgment under Rule 54(b) is appropriate where there are distinct and severable claims and where immediate review of the adjudicated claims will not result in later duplicative proceedings at the trial or appellate level. See Wood v. GCC Bend, LLC, 422 F.3d 873, 878-89 (9th Cir. 2005). Judgment under Rule 54(b) is not appropriate in routine cases where the risk of "multiplying the number of proceedings and of overcrowding the appellate docket" outweighs "pressing needs... for an early judgment." MorrisonKnudsen Co. v. Archer, 655 F.2d 962, 965 (9th Cir. 1981); see Curtiss-Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 8 (1980).

Here, the first requirement for a Rule 54(b) certification is satisfied. The Court has finally and completely resolved Defendants' claims against Hovore. (Dec. 17, 2013 Order, Doc. 83 at 4-6, 13 (determining that Hovore is not a party in this litigation and dismissing Defendants' "counterclaims" against Hovore without leave to amend)).

The Court must next determine whether "there is any just reason for delay." Wood, 422 F.3d at 878. This in turn implicates "the historic federal policy against piecemeal appeals." Id. Relevant factors include (1) whether a Rule 54(b) judgment would result in unnecessary appellate review; (2) whether the claims finally adjudicated are separate, distinct, and independent of other claims; (3) whether appellate review of the adjudicated claims could be mooted by future developments in the case; and (4) whether an appellate court would have to decide the same issues more than once if there were subsequent appeals. Id. at 878 n. 2. These factors favor a Rule 54(b) certification.

First, certification will not result in unnecessary appellate review. Even if Defendants appeal this Court's ruling, the procedural issue of whether Hovore is a party in this litigation does not overlap with the remaining issues in this litigation ( e.g. Prasad's breach of contract and related claims against Defendants).

Second, Defendants' claims against Hovore related to alleged extortion and abuse of process during Hovore's representation of Prasad in the instant litigation are separate and distinct from Prasad's underlying contract dispute with Defendants. Defendants' claims against Hovore do not arise out of the same facts as Prasad's claims against Defendants. (Doc. 83 at 8 (finding that the two sets of claims "bear no logical or factual relationship"). Moreover, the two sets of claims present completely separate legal theories against different kinds of Defendants. ( Compare Pl.'s V. Compl., Doc. 1, with Defs.' First Am. Answer, Countercl., Cross-cl., and Jury Demand, Doc. 55).

Third, review of Defendants' claims against Hovore will not be mooted by any future developments in the instant litigation, excepting a complete settlement. The Court can foresee no ruling on Prasad's claims that will alter or affect its ruling on Defendants' claims against Hovore.

Fourth, the appellate court will not be required to decide the same issues more than once if there are subsequent appeals. Any appeal related to Prasad's claims against Defendants will not raise the procedural issues that resulted in dismissal of Defendants' claims against Hovore.

In sum, the Court finds that Defendants' claims against Hovore have been finally and completely resolved and that there is no just reason to delay entry of final judgment in favor of Hovore. Accordingly, Hovore's Motion for Entry of Judgment under Rule 54(b) (Doc. 85) is granted.[4]

III. MOTIONS FOR SANCTIONS

Hovore has filed a Motion for Sanctions (Doc. 84) seeking recovery of reasonable attorneys' fees and expenses expended in defeating Defendants' "counterclaims" against Hovore in the FAACC. Hovore seeks sanctions against Defendants' counsel, Mr. Douglas, under 28 U.S.C. § 1927. ( Id. at 4, 10). Additionally, Hovore seeks sanctions against Defendants, themselves, under either the Court's inherent power or A.R.S. § 12-349. ( Id. ). In a remarkably similar motion ( compare Doc. 84, with Doc. 89), Prasad seeks recovery of its reasonable attorneys' fees and expenses expended in defeating Defendants' "counterclaims" against Prasad in the FAACC (Doc. 89 at 2-3, 7-8).

A. Hovore's Entitlement to Sanctions

1. Sanctions Under 28 U.S.C. § 1927

"Awards of attorneys' fees under 28 U.S.C. § 1927 are not frequently made." Wight v. Achieve Human Servs., Inc., 2:12-CV-1170 JWS, 2012 WL 4359078 (D. Ariz. Sept. 21, 2012). Section 1927 states:

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.

Section 1927 sanctions "must be supported by a finding of subjective bad faith." New Alaska Dev. Corp. v. Guetschow, 869 F.2d 1298, 1306 (9th Cir. 1989). "Bad faith is present when an attorney knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for the purposes of harassing an opponent." Estate of Blas v. Winkler, 792 F.2d 858, 860 (9th Cir. 1986). In the Ninth Circuit, "section [1927] authorizes sanctions only for the multipli[cation of] proceedings, ' it applies only to unnecessary filings and tactics once a lawsuit has begun." In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 435 (9th Cir. 1996).

Hovore argues that sanctions against Mr. Douglas, personally, are warranted because Mr. Douglas brought claims against Hovore in the FAACC "in bad faith and with the improper purpose of creating a conflict of interest between Hovore and Prasad." (Doc. 84 at 6-7). In lieu of presenting direct evidence of Mr. Douglas' subjective bad faith, Hovore asks the Court to objectively infer bad faith through the totality of Mr. Douglas' pleadings and litigation strategy, including Mr. Douglas' alleged frivolousness and recklessness in filing the FAACC. ( Id. at 6-11). In Response, Mr. Douglas offers excuses for the various deficiencies in the FAACC and argues that Hovore's circumstantial evidence fails to demonstrate subjective bad faith.[5] (Doc. 90 at 11-14).

As a initial matter, Mr. Douglas appears to concede ( see Doc. 90 (arguing bad faith, but not multiplication of the proceedings)), and the Court finds, that the FAACC multiplied the proceedings. After filing the original four "counterclaims"[6] against Hovore (which were filed in CM/ECF as a "Third Party Complaint") in the Answer (Doc. 35), Hovore (and Prasad) filed a motion to dismiss all four claims under Rules 12(b)(1), 12(b)(5), and 12(b)(6). (Docs. 43, 48). Hovore's (and Prasad's) motion put Mr. Douglas on notice of the numerous pleading, jurisdictional, and factual deficiencies in the original counterclaims. Nonetheless, instead of responding to the pending motions to dismiss, Mr. Douglas (for Defendants) filed the FAACC characterizing the claims as "cross-claims" in addition to "counterclaims, " dropping Arizona-residing Defendants from the four claims in an attempt to preserve diversity jurisdiction against Arizona-residing Hovore, and adding a fifth federal cause of action (interstate transmission of extortionate threats). Notably, not only were the procedural and jurisdictional changes futile, but Defendants also subsequently withdrew the new federal claim and the original intentional infliction of emotional distress claim after Hovore (and Prasad) filed motions to dismiss the FAACC. (Doc. 76 at 13; Doc. 77 at 19). Thus, with respect to Hovore, the FAACC unnecessarily and unreasonably multiplied the proceedings.

With regard to subjective bad faith, on this record, incompetence is at least as likely an explanation of Mr. Douglas' pleading strategy as bad faith. As such, the Court cannot immediately conclude that Mr. Douglas's litigation strategy evidences subjective bad faith. However, because "[b]ad faith is present when an attorney knowingly or recklessly raises a frivolous argument[, ]" Hovore need not present direct evidence of subjective bad faith to prevail. Keegan, 78 F.3d at 436; id. ("For sanctions to apply, if a filing is submitted recklessly, it must be frivolous, while if it is not frivolous, it must be intended to harass.... [R]eckless non-frivolous filings, without more, may not be sanctioned."). Thus, although Hovore rpesents no direct evidence of subjective bad faith, "a finding that [Mr. Douglas] recklessly raised a frivolous argument which resulted in the multiplication of the proceedings is also sufficient to impose sanctions under § 1927." In re Girardi, 611 F.3d 1027, 1061 (9th Cir. 2010); see, e.g., B.K.B. v. Maui Police Dept., 276 F.3d 1091, 1107 (9th Cir. 2002) ("[R]ecklessness plus knowledge was sufficient to justify the imposition of § 1927 sanctions."); Fink v. Gomez, 239 F.3d 989, 993 (9th Cir. 2001) (holding that "recklessness suffices for § 1927, but bad faith is required for sanctions under the court's inherent power").

a. Recklessness

First, the Court finds that, with respect to Hovore, Mr. Douglas filed the FAACC recklessly. As the Court noted in its previous Order, Mr. Douglas variously and inconsistently labeled the claims against Hovore (for extortion, abuse of process, and intentional inflection of emotional distress) as cross-claims, counterclaims, and a third-party complaint. (Doc. 83 at 4). By filing these claims, Mr. Douglas attempted to inject Hovore into this litigation with complete disregard for the Federal Rules of Civil Procedure. As the Court remarked, "it would be patently ridiculous for Defendants" to file a third-party complaint against Hovore because Defendants' claims are not allegations that Hovore is, in some way, liable to Defendants for Prasad's claims against Defendants." ( Id. at 5). Furthermore, the Court explained that "[i]t is elementary" that a cross-claim or counterclaim against Hovore is impermissible because Hovore was not, respectively, a co-party of Defendants in this action or a party already opposing Defendants. ( Id. ). To the extent that Mr. Douglas, in good faith, believed that he could properly plead Defendants' claims against Hovore as counterclaims, even a cursory reading of the Rule 13(a) or (b) would have revealed that Mr. Douglas must first (or at least concurrently) properly join Hovore as an additional party to this litigation under Rules 13(h), 19, or 20. Mr. Douglas' failure to even attempt to so join Hovore and follow the Federal Rules of Civil Procedure constitutes recklessness. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.