Opinion
Case No. 2:00-CV-180.
September 19, 2001
ORDER
In accordance with the Opinion filed this date,
IT IS HEREBY ORDERED that Defendants' Motion to Dismiss Counts V and VI of Plaintiffs Amended Supplemental Complaint (docket no. 18) is GRANTED. Counts V and VI of the Amended Supplemental Complaint are hereby dismissed.
IT IS FURTHER ORDERED that Plaintiffs Motion for Leave to File Second Amended Complaint (docket no. 30) is DENIED.
IT IS FURTHER ORDERED that Defendants' Amended Motion for Sanctions (docket no. 37) is GRANTED.
Defendants are awarded sanctions in the amount of $2,500 against Plaintiff and its counsel, Leslie L. Long, jointly and severally. The award shall be paid in full within thirty (30) days from the date of this Order.
OPINION
Plaintiff, Lodal, Inc. ("Lodal"), filed its complaint against Defendants, Great American Insurance Companies ("Great American"), Tamarack American, Inc. ("Tamarack"), and American Dynasty Surplus Lines Insurance Company, f/k/a Stonewall Surplus Lines Insurance Company ("American"), on September 28, 2000, seeking to invoke this Court's diversity jurisdiction. Lodal alleged in its five-count complaint claims for declaratory relief with respect to two liability insurance policies issued to Lodal by Great American and/or American. On November 16, 2000, Lodal filed an amended supplemental complaint in which it added Kevin L. Sewell as a defendant and added a claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 to 1968, as Count V and a claim pursuant to 42 U.S.C. § 1985 as Count VI. Now before the Court are: (1) Defendants' motion to dismiss Counts V and VI of Lodal's amended supplemental complaint; (2) Lodal's motion for leave to file a second amended complaint; and (3) Defendants' motion for sanctions.
Overview
Lodal is engaged in the business of manufacturing refuse trucks and refuse handling equipment and parts. Lodal's products are sold throughout the United States. Sometime prior to September 1995, Lodal obtained Commercial General Liability Policy TEP 891-88-36 from Great American (the "1995 Policy"). The term of the 1995 Policy was from September 1, 1995, through September 1, 1996, and the aggregate limit and occurrence limit was $2,000,000. Sometime prior to September 1, 1996, Lodal obtained Commercial General Liability Policy TEP 891-88-36 from Great American (the "1996 Policy") as a renewal of the 1995 Policy. The term of the 1996 Policy was from September 1, 1996, to September 1, 1997, and, like the 1995 Policy, the 1996 Policy had aggregate and occurrence limits of $2,000,000. In lieu of a deductible, the Policies provided for a Self-Insured Retention ("SIR"), pursuant to which Lodal was responsible for the first $200,000 of coverage.
It is not clear whether the SIR amount was $200,000 for both the 1995 Policy and the 1996 Policy. However, that issue is not germane to the Court's resolution of the instant motions.
Three incidents occurred during the term of the 1995 Policy that resulted in lawsuits against Lodal. The lawsuits were captioned: Wayne Hansel v. Sanitary Services, et al.; Leslie Glen Wall v. Lodal, Inc., et al.; and Joe Royal v. Lodal, et al. Another incident occurred during the term of the 1996 Policy that resulted in a lawsuit captioned Richard A. Dean, as Trustee for the heirs and next-of-kin of Michael Overby v. Lodal. Inc., et al. The Hansel case was settled for $202,000. The Wall case was tried to a jury, which found Lodal liable but was unable to agree on issues of contributory negligence and damages. As of the filing of the amended supplemental complaint, the case was scheduled for a limited re-trial on those issues in early 2001. As of the filing of the amended supplemental complaint, the Royal case was scheduled for trial in December 2000. The Overby case was settled for $50,000.
In connection with the Hansel, Wall, and Royal cases, Lodal retained its counsel in the current case, Leslie R. Long, and/or other counsel to conduct the defense or settlement of those cases. Lodal paid at least a portion of the fees of those attorneys and some of the costs associated with those cases and deducted those amounts from the SIR amount. According to Lodal, in each of those cases, Tamarack, the claims adjuster for Defendants, required or urged Lodal to retain counsel other than counsel of Lodal's choice. In the Hansel and Wall cases, Tamarack's attorney assumed control of the defense at Tamarack's expense. In theRoyal case, Tamarack assumed responsibility for paying the fees of Lodal's chosen counsel after a certain date.
One of the main issues in this case is whether Lodal has the right to retain its own counsel and deduct the attorneys fees from the SIR amount. Defendants contend that Lodal may not do so and, in connection with the defense of the Royal case, have demanded that Lodal pay Defendants $184,402.89, which Defendants contend is the remaining amount of the SIR (apparently unreduced by Lodal's payment of legal expenses). (Letter of 9/22/00 from Pande to Giuliani, Am. Supplemental Compl. Ex. 1.) Other issues concern whether attorney Long may act as the Claims Service Representative under the Policies and whether Lodal is relieved from defending a claim when the SIR amount is exhausted or Defendants assume control of the defense.
In its RICO claim, Lodal alleges that Tamarack, Great American, American, Satya Pande ("Pande"), a representative of Great American, and Defendant Kevin Sewell ("Sewell"), an attorney hired by Defendants to oversee the defense of the Wall and Royal suits, constitute a continuing enterprise under RICO. Lodal further alleges that Defendants violated RICO through three letters sent by Pande and Sewell via facsimile and mail. In its claim under 42 U.S.C. § 1985, Lodal alleges that Defendants conspired to force Lodal, through threat, intimidation, demand, extortion, and placing Lodal in fear, to withdraw the instant suit.
Discussion
I. Motion to Dismiss
A. Standard For DismissalAn action may be dismissed if the complaint fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The moving party has the burden of proving that no claim exists. Although a complaint is to be liberally construed, it is still necessary that the complaint contain more than bare assertions of legal conclusions. Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236,1240 (6th Cir. 1993) (citing Schied v. Fanny Farmer Candy Shops. Inc., 859 F.2d 434, 436 (6th Cir. 1988)). All factual allegations in the complaint must be presumed to be true, and reasonable inferences must be made in favor of the non-moving party. 2A James W. Moore, Moore's Federal Practice, T 12.34[1][b] (3d ed. 1997). The Court need not, however, accept unwarranted factual inferences.Morgan v. Church's Fried Chicken, 829 F.2d 10,12 (6th Cir. 1987). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73,104 S.Ct. 2229, 2232 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02 (1957)).
B. RICO Claim
Lodal does not allege in its amended supplemental complaint the section of RICO upon which its claim is based. However, because Lodal's sole reference in its brief in response to Defendants' motion is to 18 U.S.C. § 1962(c), the Court will treat Lodal's claim as arising under that section. That section provides:
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.18 U.S.C. § 1962(c). In order to maintain a claim under RICO, a plaintiff must show that: (1) the defendants committed two or more predicate offenses, i.e., a pattern of racketeering; (2) a RICO enterprise existed; (3) a nexus exists between the pattern of racketeering activity and the enterprise; and (4) injury to the plaintiffs business or property by reason the first three factors. VanDenBroeck v. CommonPoint Mortgage Co., 210 F.3d 696, 699 (6th Cir. 2000); Frank v. D'Ambrosi, 4 F.3d 1378, 1385 (6th Cir. 1993) (per curiam).
Having reviewed Lodal's RICO claim set forth in the amended supplemental complaint, the Court concludes that the claim must be dismissed because Lodal fails to allege the existence of an enterprise, a pattern of racketeering, and injury to its business or property caused by Defendants' alleged criminal activity.
1. Existence of an Enterprise
Under RICO, an "`enterprise' includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). Lodal alleges that the enterprise in this case consisted of Tamarack, Great American, American, Pande, and Sewell. (Am. Supplemental Compl. ¶ 148.) Lodal further alleges that the enterprise "engaged in a pattern of racketeering activity, using mail fraud, wire fraud and extortion to accomplish control of the defense of the" Wall case and the Royal case. (Id.) The alleged enterprise in this case is an association-in-fact. An association-in-fact is "a group of persons associated together for a common purpose of engaging in a course of conduct." United States v.Turkette, 452 U.S. 576, 583, 101 S.Ct.: 2524, 2528 (1981). A plaintiff may prove an association-in-fact by showing: (1) that the members of the association established a formal or informal ongoing organization; (2) that the members functioned as a continuing unit; and (3) that the organization was separate from the pattern of racketeering activity in which it engaged. Frank, 4 F.3d at 1386. In addition, the complaint must allege that the enterprise had some minimal amount of organizational structure. VanDenBroeck, 210 F.3d at 699.
Lodal's allegations are insufficient to establish an association-in-fact because they do not show "that the behavior of the listed entities [or individuals] is `coordinated' in such a way that they function as a `continuing unit."' Begala v. PNC Bank, 214 F.3d 776, 782 (6th Cir. 2000) (quoting Frank, 4 F.3d at 1386). "[S]imply conspiring to commit a fraud is not enough to trigger the Act if the parties are not organized in a fashion that would enable them to function as a racketeering organization for other purposes." VanDenBroeck, 210 F.3d at 699. Lodal alleges that the enterprise existed for the purpose of controlling the defense of the Wall and the Royal lawsuits and that in pursuit of that goal, Pande sent letters to Lodal demanding that Lodal pay the remaining SIR amount to Defendants for the defense of those cases and Sewell sent a letter charging that attorney Long had disclosed confidential information in connection with those cases. What is involved in this case is a limited dispute between an insurer and its insured over the interpretation of two insurance policies that will presumably come to an end either when the Court rules on the issues in dispute or the parties reach a settlement. Lodal's allegations show that the alleged enterprise was coextensive with the alleged racketeering acts. And, they do not demonstrate ongoing and coordinated behavior necessary to establish an association-in-fact.
2. Pattern of Racketeering Activity
A RICO plaintiff must also establish the defendant's involvement in a "pattern of racketeering activity, defined as "at least two acts of racketeering activity." 18 U.S.C. § 1961(5). However, proof of two predicate acts, without more, does not suffice to establish a pattern. A plaintiff must also show that the predicate acts are related and that they amount to or pose a threat of continued criminal activity. H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 2900 (1989). Lodal's allegations are insufficient to show a pattern of racketeering activity because they fail to establish both the required predicate RICO violations and continuing racketeering activity.
Racketeering activity may be either open-ended or closed-ended. In other words, the continuity requirement may be shown either by a "closed period of repeated conduct" or "past conduct that by its nature projects into the future with a threat of repetition." Id. at 241, 109 S.Ct. at 2902. Continuity may be shown where: (1) "the related predicates themselves involve a distinct threat of long term racketeering activity, either implicit or explicit"; (2) "the predicate acts or offenses are part of an ongoing entity's regular way of doing business"; or (3) "the predicates are a regular way of conducting defendant's ongoing legitimate business (in the sense that it is not a business that exists for criminal purposes) . . . ." Id. at 242-43, 109 S.Ct. at 2902. Factors that may be considered in determining whether the continuity requirement has been met are: (1) the number and variety of predicate acts; (2) the length of time over which the acts were committed; (3) the number of victims; (4) the presence of separate schemes; and (5) the occurrence of distinct injuries.
See Olive Can Co. v. Martin, 906 F.2d 1147, 1151 (7th Cir. 1990) (quoting Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir. 1986)).
Lodal's allegations fail to show continuity for several reasons. First, the alleged predicate acts involve letters sent by Pande to Lodal on August 28, 2000, and September 22, 2000, and by Sewell to attorney Long on November 6, 2000. (Am. Supplemental Compl. ¶¶ 167, 168, 175.) Thus, the period covered by the predicates was short, lasting less than three months. Second, there was one alleged scheme, namely, Defendants' effort to control the litigation in the Wall and Royal cases. There are no facts showing that the scheme would continue beyond the conclusion of those lawsuits. See Thompson v. Paasche, 950 F.2d 306, 311 (6th Cir. 1991) (holding that a scheme involving the sale of property ceased when the property was sold and there was no showing of continuing opportunity or scheme). Finally, the only alleged victim in the scheme was Lodal and the harm from the scheme is directed solely at Lodal. See Tabas v. Tabas, 47 F.3d 1280, 1287 (3d Cir. 1995) ("'The gist of plaintiffs' complaint is that Daniel Tabas has failed to abide by the partnership agreement made with his brother, Charles, and that Daniel has employed various methods of trickery to cheat Charles's heirs of their fifty percent share of the business that Charles and Daniel built. The sole victim of this scheme is Charles Tabas's estate. The sole perpetrator is Daniel Tabas or individuals under his control. No one else is affected. There is no threat to the community at large. This is not a case where the predicate acts are "part of an entity's regular way of doing business," such as would affect others doing business with the entity." (quoting district court)); Oak Beverages. Inc. v. Tomra of Mass., L.L.C., 96 F. Supp.2d 336, 348 (S.D.N.Y. 2000) (concluding that the plaintiffs allegations were insufficient to establish closed-end continuity because there was only one scheme, the plaintiff was the only victim, and the scheme lasted only fourteen months).
Lodal's allegations are also insufficient to establish the required predicate acts. Lodal alleges that Defendants engaged in mail fraud, wire fraud, and extortion. In particular, as noted above, Lodal's allegations are premised upon two letters sent by Pande to Lodal on August 28, 2000, and September 22, 2000, and a letter sent by Sewell to Lodal on November 6, 2000. In the August 28 letter, Pande demanded that "`Lodal immediately tender to American Dynasty the remaining Self-Insured Retention, $184,402.89, to pay for Lodal's defense costs in the Litigation."' (Am. Supplemental Compl. ¶ 167 (quoting letter).) In her September 22 letter, Pande again demanded payment of the $184,402.89 and stated, "`If we do not receive this check within five (5) days of the date of this correspondence, we will consider Lodal's actions to be a material violation of the above-referenced policy and act accordingly."' (Id. ¶ 168 (quoting letter).) In his November 6 letter, Sewell accused attorney Long of disclosing confidential information in the instant case relating to the Wall and Royal cases, demanded that Lodal "`take all steps necessary to remedy the unauthorized disclosures that have taken place to date,"' and threatened to "`seek to hold Lodal, Inc. solely responsible for any adverse consequences resulting therefrom."' (Id. ¶ 175 (quoting letter).)
In order to establish mail or wire fraud, a plaintiff must prove: (1) a scheme or artifice to defraud; and (2) use of the mails or interstate wires for the purpose of executing the fraudulent scheme. Bender v. Southland Corp., 749 F.2d 1205, 1215-16 (6th Cir. 1984). A scheme to defraud consists of a misrepresentation or omission intentionally made by the defendant and calculated to mislead the plaintiff. Kenty v. Bank One, Columbus, N.A., 92 F.3d 384, 389-90 (6th Cir. 1996). Lodal's claim of wire and mail fraud is deficient for the basic reason that Lodal failed to allege a fraudulent statement in any of the letters at issue. Furthermore, after reviewing the letters, which are attached to the amended supplemental complaint, the Court notes that they do not contain any fraudulent misrepresentations or omissions. Lodal's assertion that the demand for payment of $184, 402.89 by Pande in her letters is somehow fraudulent misinterprets the substance of the letters. Pande's requests for payment merely evinces a difference between Defendants and Lodal regarding interpretation of the Policies. Such a disagreement is insufficient to establish fraud. See Blount Fin. Servs., Inc. v. Walter E. Heller Co., 819 F.2d 151, 152 (6th Cir. 1987) (stating that "[t]he fact that the parties take different positions under the contract as to the appropriate prime rate, or the fact that the defendant charged too high a `prime rate' and thereby concealed or refused to disclose what the plaintiff considers the true prime rate called for under the contract, does not give rise to a valid claim for fraud"). Finally, Lodal's mail and wire fraud allegations are deficient because they fail to allege Defendants' fraudulent intent, the specific misrepresentations of material fact, and its reliance upon the misrepresentations, all as required by Fed.R.Civ.P. 9(b). See Bender, 749 F.2d at 1216.
Lodal also alleges that the three letters in question violated Michigan's extortion law, M.C.L. § 750.213. This claim fails as well. The extortion statute provides, in part, that:
Any person who shall, either orally or by a written or printed communication, maliciously threaten to accuse another of any crime or offense, or shall orally or by any written or printed communication maliciously threaten any injury to the person or property or mother, father, husband, wife or child of another with intent thereby to extort money or any pecuniary advantage whatever, or with intent to compel the person so threatened to do or refrain from doing any act against his will, shall be guilty of a felony . . . .
The letters from Pande and Sewell do not support a claim for extortion. The content of the letters clearly reveals that they were written solely for the purpose of enforcing Defendants' legal rights under the Policies. A threat of litigation by a party to enforce its legal rights does not constitute extortion. See Vemco, Inc. v. Camardella, 23 F.3d 129, 134 (6th Cir. 1994) ("A threat of litigation if a party fails to fulfill even a fraudulent contract . . . does not constitute extortion"); Various Markets, Inc. v. Chase Manhattan Bank, N.A., 908 F. Supp. 459, 468 (E.D.Mich. 1995) (holding that a party asserting its legal rights cannot be liable for extortion).
3. Injury to Business or Property
In order to recover under RICO, a plaintiff must show injury to his business or property by reason of a RICO violation. 18 U.S.C. § 1964(c); Beck v. Prupis, 529 U.S. 494, 504, 120 S.Ct. 1608,1615 (2000). A RICO plaintiff must establish a nexus between its injury and the predicate act. Id.; Kramer v. Bachan Aerospace Corp., 912 F.2d 151, 154 (6th Cir. 1990). Lodal's allegations do not establish that it has suffered any injury as a result of the alleged predicate acts. The alleged scheme was Defendants' attempt to obtain $184,902 from Lodal. However, Lodal does not allege that it paid any of that amount to Defendants. Thus, Lodal cannot claim injury by reason of the alleged criminal acts.
C. Violation of 42 U.S.C. § 1985
Count VI of Lodal's amended supplemental complaint alleges a claim under 42 U.S.C. § 1985, although Lodal does not state that its claim is based upon a particular subsection of § 1985. Lodal alleges that Tamarack, Great American, American, and Sewell conspired together to obstruct justice based upon Sewell's November 6, 2000, letter, which suggests that the claim is brought under § 1985(2). Because the parties also address § 1985(3) in their briefs, the Court will assume that Lodal relies on that subsection as well. However, Lodal does not state claim under either subsection.
The relevant subsections of § 1985 state:
(2) Obstructing justice; intimidating party, witness, or juror. If two or more persons in any State or Territory conspire to deter, by force, intimidation, or threat, any party or witness in any court of the United States from attending such court, or from testifying to any matter pending therein, freely, fully, and truthfully, or to injure such party or witness in his person or property on account of his having so attended or testified, or to influence the verdict, presentment, or indictment of any grand or petit juror in any such court, or to injure such juror in his person or property on account of any verdict, presentment, or indictment lawfully assented to by him, or of his being or having been such juror; or if two or more persons conspire for the purpose of impeding, hindering, obstructing, or defeating, in any manner, the due course of justice in any State or Territory, with intent to deny to any citizen the equal protection of the laws, or to injure him or his property for lawfully enforcing, or attempting to enforce, the right of any person, or class of persons, to the equal protection of the laws;
(3) Depriving persons of rights or privileges. If two or more persons in any State or Territory conspire or go in disguise on the highway or on the premises of another, for the purpose of depriving, either directly or indirectly, any person or class of persons of the equal protection of the laws, or of equal privileges and immunities under the laws; or for the purpose of preventing or hindering the constituted authorities of any State or Territory from giving or securing to all persons within such State or Territory the equal protection of the laws; or if two or more persons conspire to prevent by force, intimidation, or threat, any citizen who is lawfully entitled to vote, from giving his support or advocacy in a legal manner, toward or in favor of the election of any lawfully qualified person as an elector for President or Vice President, or as a Member of Congress of the United States; or to injure any citizen in person or property on account of such support or advocacy; in any case of conspiracy set forth in this section, if one or more persons engaged therein do, or cause to be done, any act in furtherance of the object of such conspiracy, whereby another is injured in his person or property, or deprived of having and exercising any right or privilege of a citizen of the United States, the party so injured or deprived may have an action for the recovery of damages occasioned by such injury or deprivation, against any one or more of the conspirators.42 U.S.C. § 1985(2), (3).
Any claim by Lodal under § 1985(3) must fail because "[a]n essential prerequisite for an action under § 1985(3) . . . is evidence that the defendant's conduct was motivated by racial or classbased discriminatory animus in violation of a plaintiffs right to equal protection under the law." Hahn v. Star Bank, 190 F.3d 708, 715 (6th Cir. 1999) (citing Griffin v. Breckenridge, 403 U.S. 88, 102-03, 91 S.Ct. 1790, 1798 (1971)). Lodal's amended supplemental complaint does not include such an allegation.
There are two components of § 1985(2). The first part pertains to the administration of justice in the federal courts, and the second part applies to conspiracies to obstruct justice in state courts. Kush v. Rutledge, 460 U.S. 719, 724-25, 103 S.Ct. 1483, 1487 (1983). In order to allege a claim under the first part of § 1985(2), Lodal must show that (1) there was a conspiracy; (2) to deter a witness or party by force, intimidation, or threat from testifying; which (3) results in injury to the plaintiff. David v. United States, 820 F.2d 1038, 1040 (9th Cir. 1987).
Lodal's allegations are insufficient to satisfy these requirements for at least two reasons. First, Lodal has not alleged that a party or witness has been deterred from attending court or testifying to any matter in this proceeding. Lodal contends that Sewell's November 6 letter, which demanded that Lodal "take all steps necessary to remedy the unauthorized disclosures" made in this case and threatened to "hold Lodal, Inc. solely responsible for any adverse consequences resulting therefrom," was calculated to force Lodal to withdraw this suit and abandon all of its legal rights under the Policies. The text of the letter shows that Sewell was simply expressing Defendants' concern and displeasure with Lodal's actions in disclosing in this case confidential and perhaps privileged documents relating to the defense of Lodal in theWall and Royal cases. Although Sewell did threaten to hold Lodal responsible for any adverse consequences of the disclosures, nothing in Sewell's letter suggests an intent to deter Lodal or any of its witnesses from attending court or testifying in this action. Second, Lodal's claim fails because Sewell's statements do not constitute force, intimidation, or threat as required by the statute. The claim also fails to the extent it is based on the second part of the statute because the clause relating to state court proceedings requires an allegation that the plaintiff is a member of a protected class. Kush, 460 U.S. at 726-27, 103 S.Ct. at 1487. Lodal has not alleged that it is a member of a protected class or that Defendants acted with class-based animus. Therefore, the Court will dismiss Lodal's claim under 42 U.S.C. § 1985.
II. Motion to Amend
Lodal has filed a motion for leave to file second amended complaint. Lodal asserts that it seeks to amend in response to Defendants' motion to dismiss.
Under Rule 15(a) of the Federal Rules of Civil Procedure, once a responsive pleading has been filed, "a party may amend the party's pleading only by leave of court or by written consent of the adverse party." Fed.R.Civ.P. 15(a). Rule 15(a) also provides that "leave shall be freely given when justice so requires." Id. The mandate that "leave shall be freely given" embodies "the principle that cases `should be tried on their merits rather than the technicalities of the pleadings."' Moore v. City of Paducah, 790 F.2d 557, 559 (6th Cir. 1986) (per curiam) (quotingTefft v. Seward, 689 F.2d 637, 639 (6th Cir. 1982)). However, a court is not obliged to grant an amendment simply because a motion is made. SeeJohnson v. Ventra Group, Inc., No. 96-1463, 1997 WL 468332, (6th Cir. Aug. 13, 1997) (per curiam). "A motion to amend a complaint should be denied if the amendment is brought in bad faith, for dilatory purposes, results in undue delay or prejudice to the opposing party, or would be futile." Crawford v. Roane, 53 F.3d 750, 753 (6th Cir. 1995); see also Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230 (1962).
The Court will deny Lodal's motion because Count V of the proposed second amended complaint, which is the only new claim alleged, fails to state a claim. Count V essentially merges the allegations of Counts V and VI of the amended supplemental complaint into a single claim and drops all references to RICO and its related terms, such as "predicate acts" and "enterprise", and 42 U.S.C. § 1985. It appears that Lodal rearranged its claims to avoid Defendants' motion for sanctions. However, a court need not allow leave to amend simply because a party requests it. In spite of its numerous factual allegations, Count V fails to state a claim under any cognizable legal theory.
III. Amended Motion for Sanctions
Defendants have requested an award of sanctions pursuant to Fed.R.Civ.P.11 and pursuant to 28 U.S.C. § 1927 based upon Lodal's conduct in asserting the RICO and § 1985 claims.
Pursuant to Rule 11 of the Federal Rules of Civil Procedure, an individual who files a pleading or other paper with a court certifies that:
(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;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to 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 a lack of information or belief.
Fed.R.Civ.P. 11(b)(1)-(4). Upon finding that Rule 11 has been violated, "the court may . . . impose an appropriate sanction upon the attorneys, law firms, or parties that have violated" the Rule. Fed.R.Civ.P. 11(c). What constitutes an appropriate sanction is a matter committed to the discretion of the district court. See Runfola Assocs. Inc. v. Spectrum Reporting, IL Inc., 88 F.3d 368, 376 (6th Cir. 1996). The range of sanctions includes
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.
Fed.R.Civ.P.11(c)(2). However, the sanction may not exceed "what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated." Id.
In the Sixth Circuit, the test for determining whether a party has violated Rule 11 is whether the individual's conduct was reasonable under the circumstances. See Ridder v. City of Springfield, 109 F.3d 288, 293 (6th Cir. 1997). The standard is an objective one. See Jackson v. Law Firm of O'Hara, Ruberg. Osborne Taylor, 875 F.2d 1224, 1229 (6th Cir. 1989). "Thus, an attorney's good faith is not a defense." Id. The attorney's conduct is to be judged at the time the pleading or paper was signed rather than on the basis of hindsight. See INVST Fin. Group. Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391, 401 (6th Cir. 1987).
The Court concludes that Lodal and its counsel violated Rule 11 because the RICO claim and the § 1985 claim lacked any reasonable factual or legal basis and were asserted for an improper purpose. The RICO claim was deficient in numerous respects and there was similarly no factual basis for a claim under § 1985. Moreover, the Court finds that Lodal's motion to amend violated Rule 11 because the proposed claim was not based on a viable, or even arguably viable, legal theory. Thus, Lodal's counsel's conduct was not reasonable under the circumstances.
Defendants alleged in their motion that they complied with the safe harbor provision of Rule 11 by providing Lodal with a copy of its motion more than twenty-one days before filing it with this Court. (Defs.' Am. Mot. for Sanctions ¶ 13.) Lodal does not dispute this representation.
Although Defendants have not requested a specific dollar amount for an award, the Court finds that an award of $2,500 would be sufficient to compensate Defendants for their fees and costs incurred in preparing their motion to dismiss and reply to Lodal's response, their response to Lodal's motion to amend, and their motion for sanctions. The Court also believes that this amount is sufficient to deter similar conduct by Lodal and its counsel in the future. The award of sanctions will be imposed against Lodal and its counsel, jointly and severally.
Conclusion
For the foregoing reasons, the Court will grant Defendants' motion to dismiss Counts V and VI of Lodal's amended supplemental complaint, deny Lodal's motion to amend, and grant Defendants' motion for sanctions.
An Order consistent with this Opinion will be entered.