Opinion
Case No. 1:03-CV-148 TC.
March 14, 2005
MEMORANDUM ORDER RE: MOTION FOR SANCTIONS
Plaintiff filed suit against MTGLQ Investors, L.P., and John Does 1 through 10 in the Second Judicial District Court, Davis County, State of Utah, where he obtained a default judgment against Defendant MTGLQ Investors, L.P. (hereinafter "Defendant" or "MTGLQ"). After learning of the default judgment, Defendant MTGLQ removed the case to the district court on the basis of diversity jurisdiction. Thereafter, upon motion of Defendant, this court set aside the default judgment. (Order Re: Pending Motions, Dkt. no. 30.) Subsequently, the court granted Defendant's motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The case is presently before the court on Motion of Defendant MTGLQ Investors, L.P., for Rule 11 Sanctions (Dkt. no. 49), and Plaintiff's Motion for More Definite Statement on MTGLQ's Motion for Rule 11 Sanction or Motion to Strike the Request for Sanctions (Dkt. no. 46).
I. FACTS
1. This case was removed to this court on December 12, 2003, shortly after Defendant learned that Plaintiff had obtained a default judgment against it in state court, apparently in the amount of $1,896,404.34. (See Notice of Removal and exhibits thereto.)2. Plaintiff never served the complaint on Defendant; but instead, served the Utah Division of Corporations. Plaintiff justified this action by alleging that Defendant was "transacting business" within the state, but had failed to register as a foreign limited partnership as required by Utah Code Ann. § 48-2a-902(1) (2002). (Compl. ¶ 3.) Under § 48-2a-907(4), a foreign limited partnership, by transacting business in the state without registration, appoints the director of the Division of Corporations and Commercial Code as its agent for service of process.
3. On December 17, 2003, Plaintiff responded to the removal of the case to this court by filing a Motion to Dismiss or Strike. (Dkt. no. 3.) Thereafter, on February 3, 2004, he filed a Motion to Dismiss for Lack of Jurisdiction. (Dkt. no. 20.) Both motions asserted that this court lacked jurisdiction over the case and that it had been improperly removed to this court.
4. Following removal, Defendant filed a motion to set aside the default judgment that had been entered in state court. (Dkt. no. 15.)
5. In response to the motion to set aside the default judgment, Plaintiff did not deny that he had deliberately planned to obtain the default judgment without giving notice to Defendant of the filing of the complaint, but instead maintained that he was justified in proceeding as he had. (See Plaintiff's Reply to MTGLQ's Response to Motion to Dismiss for Lack of Jurisdiction and Response to Motion to Set Aside Judgment, Dkt. no. 24.)
6. On April 20, 2004, this court granted Defendant's motion to set aside the default judgment, and denied Plaintiff's Motion to Dismiss or Strike, and his Motion to Dismiss for lack of Jurisdiction. (Order Re: Pending Motions, Dkt. no. 30.)
On May 19, 2004, Plaintiff filed a Notice of Appeal from the court's order asking for a stay while he filed a petition with the United States Supreme Court. (Dkt. no. 31.) The Tenth Circuit dismissed the appeal sua sponte "because the order being appealed was not final or otherwise immediately appealable." (Order, filed 8/20/04, Ex. A to Def.'s Reply Mem. in Support of Mot. for Sanctions.) Subsequently, on December 14, 2004, Plaintiff filed a Petition for Writ of Certiorari in the Supreme Court. (See Letter from the Tenth Circuit dated December 27, 2004, Dkt. no. 55.) Plaintiff's petition was denied on February 22, 2005. (See Letter from the Tenth Circuit dated March 1, 2005, Dkt. no. 56.)
7. On May 20, 2004, after the default judgment had been set aside, Defendant filed a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Dkt. no. 34.)
8. In response to the motion to dismiss, Plaintiff filed a Motion for Stay to File Response to MTGLQ's Motion to Dismiss. (Dkt. 36.) On June 9, 2004, this court denied Plaintiff's Motion for Stay and gave him fourteen days to file an opposition to Defendant's motion to dismiss. (Order, Dkt. no. 38.)
9. On June 22, 2004, Plaintiff filed a Motion for More Definite Statement on MTGLQ's Motion to Dismiss which apparently constituted his opposition to Defendant's motion to dismiss. (Dkt. no. 41.) In this motion, Plaintiff did not address the legal sufficiency of his complaint, but instead continued to argue that this court lacks jurisdiction.
10. In March 2005, after carefully reviewing the complaint and the parties' submissions, the court concluded that the complaint failed to state a claim, and granted Defendant's motion to dismiss for failure to state a claim upon which relief can be granted.
II. DISCUSSION
Defendant MTGLQ seeks Rule 11 sanctions against Plaintiff for his pursuit of what MTGLQ characterizes as his groundless complaint, as well as his baseless challenges to the court's jurisdiction, and his opposition to MTGLQ's motion to set aside the default judgment. (Def.'s Mot. Rule 11 Sanctions, Dkt no. 49.)
Rule 11 provides in pertinent part as follows:
(b) Representations to Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper, an attorney or unrepresented party is certifying 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 or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
. . . .
(c) Sanctions. If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation.
A. Consideration of Whether Plaintiff Violated Rule 11.
An award of Rule 11 sanctions typically involves two steps. First, the district court must determine whether the pleading, motion or other paper violates Rule 11. Second, the court must decide the appropriate sanction. Eisenberg v. University of New Mexico, 936 F.2d 1131, 1135-36 (10th Cir. 1991); Adamson v. Bowen, 855 F.2d 668, 672 (10th Cir. 1988).
The court reviews allegations of a Rule 11 violation under an objective standard. Dodd Ins. Servs., Inc. v. Royal Ins. Co. of America, 935 F.2d 1152, 1155 (10th Cir. 1991); White v. General Motors Corp., 908 F.2d 675, 680 (10th Cir. 1990);Adamson, 855 F.2d at 673. A good faith belief in the merit of an argument is insufficient. White, 908 F.2d at 680.
Defendant asserts that Plaintiff has violated Rule 11 by (1) presenting unwarranted and frivolous claims and arguments, and (2) filing and pursuing his complaint for an improper purpose.
1. Presentation of Unwarranted and Frivolous Claims
In support of its claim that Plaintiff has presented unwarranted and frivolous claims, Defendant asserts that (1) Plaintiff's complaint is baseless; (2) his challenges to the court's jurisdiction are unwarranted; and (3) he has failed to present any credible reason why the state court default judgment should not be set aside. Further, he lacked standing to file the lawsuit because he was not an "accommodation party" as alleged, and did not own the property upon which he apparently sought to obtain a quiet title decree. Moreover, Plaintiff failed to respond on the merits to Defendant's motion to dismiss; and instead, filed a motion for a more definite statement which was, in reality, a re-argument of his contention that this court lacks jurisdiction in this case. Defendant argues that the reason Plaintiff failed to attempt to demonstrate the legal merit of the complaint is that Plaintiff knows the complaint has no legal merit.
a. Filing of Baseless Complaint
As Defendant acknowledges, "[m]ost of the circuit courts that have addressed the issue have held that papers filed in state court prior to removal are not subject to Rule 11 sanctions." 2 James Wm. Moore et al., Moore's Federal Practice § 11.02[2][b] (3d ed. 2004). See, e.g., Griffen v. City of Oklahoma City, 3 F.3d 336, 338-40 (10th Cir. 1993) (collecting cases). Thus, a plaintiff is not subject to Rule 11 sanctions simply for filing a complaint in state court. However, if he "later advocates" the complaint in federal court, sanctions may be appropriate as observed by Moore:
Although the complaint filed in state court usually may not be the basis for Rule 11 sanctions, if a party "later advocates" a frivolous position taken in a removed complaint, sanctions may be imposed. As stated in the 1993 Advisory Committee Note, "if after a notice of removal is filed, a party urges in federal court the allegations of a pleading filed in state court . . . it would be viewed as `presenting' . . . those allegations." 2 Moore's Federal Practice § 11.02[2][b](footnotes omitted). The 1993 Advisory Committee Note specifically states that this includes disputes involving removal or remand.
Plaintiff's complaint is baseless for several reasons. He has no standing to assert his "accommodation party" claim because he is not an accommodation party. Further, he lacks standing to assert a quiet title claim since he is not the owner of the subject property. His claims under the Utah Pattern of Unlawful Activity Act are completely baseless, and the court finds that no reasonable pro se plaintiff could have believed that he had a legitimate claim under the Act based upon the facts of this case. Similarly, there is no ground for his claim for conversion. Finally, Plaintiff failed to come forward with any basis to support the default judgment he obtained in state court.
Defendant served its motion for sanctions on plaintiff twenty-one days before filing it with the court as required by Rule 11(c)(1)(A). Plaintiff therefore had a twenty-one day "safe harbor" in which he could have withdrawn the complaint without sanctions. However, he failed to do so. It is therefore clear that he intends to pursue this baseless complaint.
Defendant served its motion for sanctions on Plaintiff on July 8, 2004. (See Notice of Service of Motion of Defendant MTGLQ Investors, L.P. for Rule 11 Sanctions, Dkt. no. 44.) Defendant filed its motion for Rule 11 sanctions with the court on August 3, 2004. (Dkt. 49.)
"[T]he rule's twenty-one day `safe harbor' provision, see Fed.R.Civ.P. 11(c)(1)(A), . . . is intended `to give the parties at whom the motion is directed an opportunity to withdraw or correct the offending contention.'" Hutchinson v. Pfeil, 208 F.3d 1180, 1184 (10th Cir. 2000) (quoting AeroTech, Inc. v. Estes, 110 F.3d 1523, 1528-29 (10th Cir. 1997)). The court may appropriately impose sanctions for the plaintiff's failure to dismiss the case after becoming aware that it lacks merit. Runfola Assoc., Inc. v. Spectrum Reporting II, Inc., 88 F.3d 368, 373-74 (6th Cir. 1996);see also Barber v. Miller, 146 F.3d 707, 710 (9th Cir. 1998) ("[T]he timely withdrawal of a contention will protect a party against a motion for sanctions."). Accordingly, Plaintiff is subject to sanctions for failure to dismiss this case after becoming aware that his complaint lacks merit.
b. Challenges to this Court's Jurisdiction
Following removal to this court, Plaintiff responded by filing his Motion to Dismiss or Strike (Dkt. no. 3), and his Motion to Dismiss for Lack of Jurisdiction (Dkt. no. 20). In these motions, Plaintiff argues that this court lacks jurisdiction in this matter, and that the complaint was therefore improperly removed. Because this case is subject to the court's diversity jurisdiction, the case was properly removed, and Plaintiff's motions were denied. (Order Re: Pending Motions, Dkt. no. 30.) Nevertheless, even though this court rejected Plaintiff's jurisdictional arguments, he continued to pursue them in his Motion for More Definite Statement on MTGLQ's Motion to Dismiss. (Dkt. no. 41.) Further, he has again raised this argument in opposition to the instant motion for sanctions.
See Motion for More Definite Statement on MTGLQ's Motion for Rule 11 Sanction or Motion to Strike the Request for Sanctions, Dkt. no. 46, and supporting memorandum, Dkt. no. 47; and Plaintiff's Reply to Defendant's Response to Motion for More Definite Statement on MTGLQ's Motion for Rule 11 Sanction or Motion to Strike the Request for Sanctions, Dkt no. 52.)
Plaintiff's filings reflect that he has done some legal research on the subject of federal jurisdiction, but has come to an incorrect conclusion. However, even if Plaintiff initially had a good faith belief in his position, once the court ruled against him, he was on notice that his legal analysis was incorrect. He therefore should have been alerted that his legal work was defective and that he should proceed with caution in pursuing a line of argument that already had been rejected by the court.See EEOC v. Tandem Computers Inc., 158 F.R.D. 224, 229 (D. Mass. 1994) (holding that sanctions are warranted where a party presents arguments that have repeatedly been decided against him); see also Kurkowski v. Volcker, 819 F.2d 201, 204 (8th Cir. 1987) (although pro se complaint should be read liberally, it still may be frivolous if filed in the face of previous dismissals involving same legal theories and parties).
2. Filing Complaint for Improper Purpose.
Defendant also contends that Plaintiff's complaint was filed and pursued for an improper purpose, i.e., to harass Defendant. Defendant states that it is clear from reading the complaint that it was not filed to vindicate an actual harm suffered by Plaintiff, but instead for the purpose of harassing MTGLQ in violation of Rule 11(b)(1). Defendant points out that as a result of Plaintiff's scheme to obtain a default judgment against MTGLQ in state court, judgment was entered against MTGLQ for almost $2,000,000. Despite the unfair manner in which he proceeded, and the baselessness of his allegations in the first place, Plaintiff then did everything possible to convince this court to allow the default judgment to stand. In Defendant's view, Plaintiff's course of conduct clearly reveals his purpose to harass MTGLQ by obtaining a large judgment despite the fact that he was unable to articulate how any legally protected interest of his had been violated in any way.
The majority of courts apply an objective standard in determining whether a paper was filed for an improper purpose. 2Moore's Federal Practice § 11.8; see, e.g., Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 n. 9 (9th Cir. 1986),overruled on other grounds by Cooter Gell v. Hartmarx Corp., 496 U.S. 384 (1990)). Although a court may infer an improper purpose from the consequences of filing a paper, see Bay State Towing Co. v. Barge Am. 21, 899 F.2d 129, 132-33 (1st Cir. 1990), it may not infer an improper purpose simply from the filing of frivolous legal arguments. See Simon v. DeBartolo Group, L.P. v. Richard E. Jacobs Group, Inc., 186 F.3d 157, 176-77 (2d Cir. 1999). Regarding a claim that a paper was filed for the purpose of harassment, the Ninth Circuit has stated:
[T]he conduct forming the basis of the charge of harassment must do more than in fact bother, annoy or vex the complaining party. Harassment under Rule 11 focuses upon the improper purpose of the signer, objectively tested, rather than the consequences of the signer's act, subjectively viewed by the signer's opponent.Zaldivar, 780 F.2d at 831-32. Further, at least one court has concluded that Rule 11 sanctions are not warranted where the court cannot "unequivocally conclude" that the complaint was filed for an improper purpose. Rosenheck v. Rieber, 932 F. Supp. 626, 628 (S.D.N.Y. 1996).
In the instant case, Plaintiff's conduct in filing the complaint caused Defendant to expend a significant amount of time and money in defending his claims. However, the court cannot conclude, using an objective standard, that Plaintiff's complaint was filed for an improper purpose. Accordingly, no sanction will be imposed on that ground.
B. Plaintiff's Status as a Pro Se Litigant
Although Rule 11 applies to pro se litigants, the court takes pro se status into consideration in determining whether the filing was reasonable. Warren v. Guelker, 29 F.3d 1386, 1390 (9th Cir. 1994); Harris v. Heinrich, 919 F.2d 1515, 1516 (11th Cir. 1990). In addition, the offending party's history is a factor that courts may take into consideration in deciding whether to impose Rule 11 sanctions and the type of sanction.Eisenberg, 936 F.2d at 1136; White, 908 F.2d at 685.
Defendant argues that the court should not excuse Plaintiff's conduct because he is a pro se litigant. In support of this contention, Defendant points to prior pro se lawsuits that Plaintiff has filed. Defendant notes that Plaintiff filed two cases in state court in which several of his claims were dismissed for lack of standing. See Jenkins v. Swan, 675 P.2d 1145 (Utah 1983); Jenkins v. Finlinson, 607 P.2d 289 (Utah 1980).
In addition, he attempted to intervene in a condemnation proceeding in this court involving certain parcels of land covered under the same Amendment to Deed of Trust at issue in this case. See United States v. 129.97 Acres of Land, Case No. 1:97-CV-95 DAK. The court entered summary judgment against Plaintiff, finding that he had no interest in the subject property, and therefore no standing. (Order at 3, Ex. B.) Plaintiff appealed from this judgment three times, each time unsuccessfully.
Unless otherwise specified, all exhibits are attached to Defendant's memorandum in support of its motion for sanctions, docket no. 50.
On the first appeal, the Tenth Circuit affirmed the decision of the district court. United States v. 129.97 Acres of Land, No. 99-4122, 2000 U.S. App LEXIS 13958 (10th Cir. June 14, 2000). (Ex. C.) Subsequently, the district court entered an amended judgment, and Plaintiff again appealed. The Tenth Circuit determined that this second appeal was frivolous and awarded sanctions in the form of attorney's fees. No. 01-4113, 2002 U.S. App. LEXIS 24589 (10th Cir. Dec. 4, 2002), (Ex. D); (Order of 1/24/03, Ex. E.).
After the second appeal, the case was remanded and Plaintiff filed several frivolous motions including one to recuse the district judge. After Plaintiff ignored a warning that additional filings would result in sanctions, the district court imposed a $500 sanction. On appeal, the Tenth Circuit found Plaintiff's appeal "clearly frivolous" and imposed sanctions against Plaintiff "for filing another frivolous appeal." United States v. 129.97 Acres of Land, No. 03-4275, 2004 WL 2801798, at **2 (10th Cir. Dec. 7, 2004) (setting forth the history of Plaintiff's litigation in that case).
In addition, Plaintiff filed a separate complaint in the condemnation proceeding in which the district court held that the prior judgment was res judicata and that Plaintiff had no standing to proceed. The court's judgment was affirmed on appeal. Jenkins v. Babbitt, No. 00-4057, 2000 WL 1773236 (10th Cir. Dec. 4, 2000).
In the instant case, the court concludes that an objectively reasonable pro se litigant could not have believed that he was justified in pursuing his claims against Defendant. Further, even if Plaintiff somehow entertained a subjective belief that there was some legal support for his claims, his past history of unsuccessful litigation should have put him on notice to proceed with caution in his litigious endeavors. To the contrary, Plaintiff recklessly continues to pursue his claims with little heed to following correct procedure, conducting careful legal research, or consulting with qualified counsel. Plaintiff's course of conduct in this and other cases constitutes a pattern of abuse. See Lal v. Borough of Kennett Square, 935 F. Supp. 570, 577 (E.D. Pa. 1996), aff'd, 124 F.3d 187 (3d Cir. 1997). Accordingly, the court concludes that he should be sanctioned.
C. Appropriate Sanction
Rule 11 provides in pertinent part as follows:
(2) Nature of Sanction; Limitations. A sanction imposed for violation of this rule shall be limited to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated. Subject to the limitations in subparagraphs (A) and (B), the sanction may consist of, or include, directives of a nonmonetary nature, 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 some or all of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation.
Rule 11 sanctions serve several purposes including "(1) deterring future litigation abuse, (2) punishing present litigation abuse, (3) compensating victims of litigation abuse, and (4) streamlining court dockets and facilitating case management." White, 908 F.2d at 683; accord Eisenburg, 936 F.2d at 1136. However, the primary purpose of Rule 11 sanctions is to deter future violations. White, 908 F.2d at 683; Dodd Ins. Servs., Inc., 935 F.2d at 1159. See Cooter Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990) ("It is now clear that the central purpose of Rule 11 is to deter baseless filings in district court and thus, . . . streamline the administration and procedure of the federal courts.")
Although Rule 11 specifically allows the award of attorney's fees as an appropriate sanction, it does not create an entitlement to full compensation each time a frivolous paper is filed. White, 908 F.2d at 683. Rather, the appropriate sanction is the least severe sanction that will deter the Plaintiff from similar conduct in the future. Eisenberg, 936 at 1136; Dodd Ins. Servs., Inc., 935 F.2d at 1159 ("[T]he amount of sanctions is appropriate only when it is the `minimum that will serve toadequately deter the undesirable behavior.'"); White, 908 F.2d at 683.
The following factors should be considered in determining an appropriate sanction:
(1) reasonableness of fees, if sanctions based on opposing party's attorney fees and costs, (2) minimum needed to deter the offensive behavior, (3) the ability to pay, and (4) other factors such as "offending party's history, experience, and ability, the severity of the violation, the degree to which malice or bad faith contributed to the violation, [and] the risk of chilling the type of litigation involved."Eisenberg, 936 at 1136 (quoting White, 908 F.2d at 685).
In the instant case, Plaintiff violated Rule 11 by continuing his challenge to this court's jurisdiction after the issue was decided against him, and by pursuing the frivolous claims in his complaint after declining the opportunity to withdraw them pursuant to Rule 11's safe harbor provision. In determining an appropriate sanction, the court concludes that a monetary sanction of $1,000 is the minimum necessary to deter Plaintiff's offensive behavior in the future. The court bases this conclusion on the fact that Judge Kimball previously sanctioned Plaintiff $500, but Plaintiff continued his offensive conduct. The court further finds that Plaintiff has the ability to pay this sanction based upon the statement in his complaint that he has over $291,000 in funds deposited in the trust account of Security Title Company. (Compl. ¶ 13.) See McLaughlin v. Bradlee, 803 F.2d 1197, 1206 (D.C. Cir. 1986) (indicating that information concerning ability to pay may be discerned from the record); see also Lal, 935 F. Supp. at 578 (finding plaintiff had ability to pay sanction based on statement in complaint). Finally, the court concludes that Plaintiff's history of frivolous litigation is egregious, and imposition of the sanction will not chill the type of litigation involved. Because the court finds that $1,000 is an appropriate sanction, it declines to award Defendant its attorney's fees.
III. ORDER
Defendant's Motion for Rule 11 Sanctions (Dkt. no. 49) is GRANTED in part, and DENIED in part; Plaintiff's Motion for More Definite Statement on MTGLQ's Motion for Rule 11 Sanction or Motion to Strike the Request for Sanctions (Dkt. no. 46) is DENIED.Plaintiff is ORDERED to pay a monetary sanction of $1,000 to the clerk of the court. Further, Plaintiff will not be allowed to file any other lawsuit involving MTGLQ or its individual members as defendants, or property in which MTGLQ has an interest, until he has paid the sanction in this case, and any sanctions still outstanding in Case No. 1:97-CV-95 DAK. Plaintiff is further ORDERED to comply with a separate order entered today to take the steps necessary to vacate or set aside any judgments filed or domesticated in foreign jurisdictions based upon the Utah default judgment that has been set aside.