United States District Court, D. Arizona
ORDER
BRIDGET S. BADE, UNITED STATES MAGISTRATE JUDGE
Defendants,
Ugly Pools Arizona, Inc., and Brian Morris
(“Defendants”), have filed a motion for sanctions
pursuant to 28 U.S.C. § 1927 and the Court's
inherent authority. (Doc. 103.) The motion is fully briefed.
(Docs. 105, 107.) As set forth below, the Court denies the
motion.
I.
Background
The
facts of this case are explained in detail in this
Court's orders on the motions for summary judgment (Docs.
64, 95, 96), and are not repeated here. However, the Court
notes that this case involved Plaintiff's claims for (1)
copyright infringement under the Copyright Act, 17 U.S.C.
§ 501(a) (Count One), (2) unfair competition under
Arizona law (Count Two), and (3) violation of the Digital
Millennium Copyright Act (“DMCA”), integrity of
copyright management information under 17 U.S.C. § 1202
(Count Three). (Doc. 39.) Plaintiff described its business as
licensing pre-made websites that it referred to as the
Platform. (Doc. 78-1 at 1.) The Platform was described
generally as computer programs, photographs, and writing.
(Id. at ¶ 2.) Plaintiff's claims were based
on its allegation that Defendants had reproduced the
copyrighted elements of the Platform “verbatim.”
(Doc. 39 at ¶ 38.) The parties filed several motions for
summary judgment on Plaintiff's claims. (Docs. 43, 45,
78, 79, 86.) The Court granted summary judgment in favor of
Defendants on Plaintiff's claims, entered judgment in
Defendants' favor, and dismissed Plaintiff's cause of
action. (Docs. 64, 95, 96, 97.) Defendants then filed a
motion for attorney's fees and the pending motion for
sanctions against Plaintiff. (Docs. 102, 103). The Court
considered the motion for attorney's fees in a separate
order. (Doc. 111.)
II.
Sanctions under § 1927
Defendants'
motion seeks sanctions against Plaintiff's attorney under
28 U.S.C. § 1927. (Doc. 103 at 3-10.) Section 1927
provides, in pertinent part, that “[a]ny attorney . . .
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.” 28
U.S.C. § 1927. To impose sanctions under § 1927,
the court must find that the sanctioned party
“knowingly or recklessly raise[d] a frivolous argument,
or argue[d] a meritorious claim for the purpose of harassing
an opponent.” In re Keegan Mgmt. Co., 78 F.3d
431, 436 (9th Cir. 1996).
Additionally,
sanctions under § 1927 may be used only to sanction the
multiplication of proceedings, not the initiation of
proceedings. Matter of Yagman, 796 F.2d 1165, 1187
(9th Cir. 1986). The section “applies only to
unnecessary filings and tactics once a lawsuit has
begun.” Keegan, 78 F.3d at 436 (internal
quotations omitted). A “finding that the attorney
recklessly or intentionally misled the court is sufficient to
impose sanctions under § 1927, and a finding that the
attorneys 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)
(citations omitted). “[W]ith § 1927 as with other
sanctions provisions, [d]istrict courts enjoy much discretion
in determining whether and how much sanctions are
appropriate.” Haynes v. City & Cty. of San
Francisco, 688 F.3d 984, 987 (9th Cir. 2012) (internal
quotation marks and citation omitted).
Defendants
cite several instances of conduct by Plaintiff's counsel
that they allege warrant sanctions under § 1927. (Doc.
103.) As set forth below, the Court finds that counsel's
conduct, while inappropriate in some instances, did not
“unreasonably and vexatiously” multiply the
proceedings.
A.
Unreasonable Settlement Demands
Defendants
assert that Plaintiff, through counsel, made settlement
demands that were unreasonable and necessitated several years
of litigation.[1] (Doc. 103 at 4-5.) Defendants argue that
Plaintiff's settlement demands greatly exceeded their
claimed damages.[2] (Id. at 4.) Defendants argue that
these settlement demands are evidence of counsel's bad
faith and support the imposition of sanctions. As explained
below, the Court rejects Defendants' argument.
Defendants
assert that the value of a license for Plaintiff's
website was about $15, 000, and Defendants grossed about $3,
000 from the allegedly infringing website. (Id. at
5.) Defendants argue that Plaintiff's damages, including
attorney's fees, totaled $32, 000 on January 18, 2016.
(Id. at 4 (citing Doc. 46-7 at 2 (stating that
Plaintiff's “damages to date” were
“$32, 000 including the cost of the platform, lost
revenue from monthly rental of the platform, and legal
fees.”)).) However, Plaintiff initially demanded $90,
000 to settle this case, and later reduced that demand to
$65, 000 for a May 10, 2016 settlement conference. (Doc. 103
at 4; Doc. 102, Ex. F at 6.)
Defendants,
however, misstate Plaintiff's calculation of the damages
that it had incurred by the time of the May 10, 2016
settlement conference. Plaintiff asserted that it had
suffered the following damages: lost licensing fees of $18,
000, monthly maintenance fees totaling $1, 199.88, and
attorney's fees through April 30, 3016 totaling $31, 000.
(Doc. 102, Ex. F at 4.) Therefore, at the time of the May
2016 settlement conference, Plaintiff asserted that it had
suffered damages, including attorney's fees, totaling
$50, 199.88. (See id.) Plaintiff also asserted that
Defendants had offered $20, 000 to settle the case and did
not increase their offer. (Id., Ex. F at 6.)
Defendants' motion for sanctions and their reply in
support of that motion do not address their offers to settle
the case. However, Defendants' reply in support of their
motion for attorney's fees states that they made a $20,
000 settlement offer. (Doc. 109 at 2.) Therefore, the Court
concludes that Defendants offered $20, 000 to settle the case
and did not increase that amount at any point during the
litigation.
Defendants
assert that Plaintiff's rationale for its settlement
demands, which they characterize as “far beyond”
the amount of Plaintiff's damages, was that
“Defendants would be liable for more than that amount
in attorney's fees by the conclusion of the
litigation.” (Doc. 103 at 4; Doc. 107 at 2 (stating
that Plaintiff “insisted on being paid attorneys'
fees Plaintiff had not yet incurred”); Doc. 107 at 3
(“a settlement demand based upon attorney's fees
not yet incurred is plain extortion and
unreasonable.”) (emphasis in original).) To support
their argument for sanctions based on the allegedly
unreasonable settlement demands, Defendants cite Calloway
v. Marvel Entm't Group, 854 F.2d 1452, 1482 (2d Cir.
1988), rev'd in part on other grounds by Pavelic
& LeFlore v. Marvel Entm't Group, 39 U.S. 120
(1989). In Calloway, the district court awarded
sanctions under § 1927 because the plaintiff delayed in
accepting a settlement offer that would have provided all the
relief plaintiff could expect to recover from the defendant.
Calloway, 854 F.2d at 1481. In that case, the
plaintiff rejected the defendant's settlement offer
without explanation and continued the litigation, eventually
accepting the same offer several days after trial had
commenced. Id. at 1482. On appeal, the Second
Circuit did not consider the merits of the ruling on the
motion for § 1927 sanctions. Id. Rather, the
court reversed the award of sanctions because it concluded
that the parties' stipulation of dismissal had settled
all their disputes, including the motion for sanctions that
had been filed before trial. Id.
Defendants'
reliance on Calloway is misplaced because the Second
Circuit's decision did not consider the merits of the
sanctions award under § 1927.[3] Additionally, in contrast to
the plaintiff in Calloway, Plaintiff did not reject
an offer that would have provided all the relief it would
have been entitled to recover from Defendants if it prevailed
in the litigation. At the time of the parties' May 2016
settlement conference, Plaintiff claimed it had incurred
approximately $51, 000 in damages, and Defendants offered
$20, 000 to settle the case. (Doc. 102, Ex. F at 4, 6.)
Therefore, Plaintiff's $65, 000 settlement demand may
have exceeded its damages, but Defendants' $20, 000
settlement offers were not for the full amount of
Plaintiff's claimed damages. Although the Court's
analysis would differ if Defendants had offered the full
amount of Plaintiff's claimed damages (excluding any
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