Opinion
Civil Action No: 04-2896 Section: "R" (4).
May 26, 2005
ORDER AND REASONS
Before this Court is defendants' motion for summary judgment under Federal Rule of Civil Procedure 56. Defendants also move for sanctions under Federal Rule of Civil Procedure 11. Plaintiff opposes both motions. For the following reasons, the Court GRANTS defendants' motion for summary judgment and DENIES defendants' motion for sanctions.
I. FACTUAL AND PROCEDURAL BACKGROUND
On May 28, 1999 and on September 20, 1999, plaintiff, a corporation allegedly named Metropolitan Interconnect, Inc. and organized under the laws of Delaware, entered two agreements to provide defendants with telecommunications services for their debt collection business. According to plaintiff, it provided the services according to the contract, but defendants refused to pay plaintiff the amount they owed for those services. On October 8, 2002, plaintiff sued defendants in Louisiana state court to recover the unpaid fees.
On April 2, 2004, defendants filed an exception to plaintiff's suit under LA.REV.STAT. 12:314, which prohibits a foreign corporation transacting business in Louisiana from presenting a judicial demand in Louisiana state court unless it has obtained a certificate of authority to transact business in Louisiana. LA.REV.STAT. 12:314(A). On July 20, 2004, defendants obtained a corporate charter in the name of Metropolitan Interconnect, Inc., the very name under which plaintiff had sued them for the unpaid fees, and applied for the trade name Metropolitan Interconnect. (Defs.' Mot. Summ. J., Exs. 8, 9). Plaintiff alleges that defendants did so to prevent plaintiff from obtaining the certificate of authority it needs to pursue a lawsuit against defendants in state court for the unpaid fees.
On October 22, 2004, plaintiff sued defendants in this Court and requested a "temporary restraining order, preliminary injunction, permanent injunction and damages for unfair trade practices," asking the court to require defendants to withdraw their registration of the name Metropolitan Interconnect, Inc. Plaintiff alleged that defendants organized a corporation in that name with knowledge that plaintiff was doing business in the state under that name and for the sole purpose of preventing plaintiff from suing them under that name for the unpaid fees. (Pl.s' Compl. at ¶ 12). Plaintiff alleged causes of action under the Louisiana Unfair Trade Practices Act, 42 U.S.C. § 1983, and the Sherman Act.
On October 26, 2004, the Court denied plaintiff's request for a temporary restraining order because plaintiff failed to demonstrate a substantial likelihood of success on the merits of its claims.
Defendants now move for summary judgment under Rule 56, arguing that plaintiff does not have capacity to sue under Rule 17(b), that defendants have not caused plaintiff any compensable harm, and that plaintiff has failed to raise a genuine issue of material fact as to whether defendants violated the Louisiana Unfair Trade Practices Act, 42 U.S.C. § 1983, or the Sherman Antitrust Act. Defendants also move the Court to sanction plaintiff's counsel under Rule 11.
II. DISCUSSION
1. Legal Standard
A. Motion for Summary Judgment
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. See FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986). A court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in her favor." Lavespere v. Niagara Mach. Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990) ( citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). The moving party bears the burden of establishing that there are no genuine issues of material fact.
If the dispositive issue is one on which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. See Celotex, 477 U.S. at 325; see also Lavespere, 910 F.2d at 178. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. See Celotex, 477 U.S. at 324. The nonmovant may not rest upon the pleadings, but must identify specific facts that establish a genuine issue exists for trial. See id. at 325; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1996).
2. Analysis
a. Capacity to Sue
Defendants argue that plaintiff lacks capacity to sue in this Court under Federal Rule of Civil Procedure 17(b). Under Rule 17(b), "[t]he capacity of a corporation to sue or be sued shall be determined by the law under which it was organized." FED. R. CIV. P. 17(b). Plaintiff's complaint alleges that it is a corporation organized under the laws of Delaware, but there appears to be confusion about the exact name of the corporation. Defendants submit a certificate from the Secretary of State of Delaware, dated November 4, 2004, which attests that "Metropolitan Interconnect, Inc." is not the title of a Delaware corporation or foreign corporation registered in Delaware, and that no corporation by that name has ever filed a certificate of incorporation or qualified as a foreign corporation in Delaware. (Defs.' Ex. 1). Defendants' evidence establishes that no corporation named "Metropolitan Interconnect, Inc." exists under the laws of Delaware, and plaintiff has not produced evidence to rebut defendants' evidence. Thus, under Rule 17(b), an entity of that name allegedly organized in Delaware cannot have capacity to sue in this Court.
The evidence also establishes, however, that a corporation named "Metropolitan Interconnect Corporation" was organized in Delaware on December 21, 1995. Plaintiff now acknowledges that it is that corporation. At the time the suit was filed, Metropolitan Interconnect Corporation was "no longer in existence and good standing under the laws of the state of Delaware having become inoperative and void the first day of March, A.D. 1998 for non-payment of taxes." (Defs.' Ex. 2). Under Del. Code Ann. tit. 8, § 510, if any corporation neglects or refuses to pay the State any franchise tax it owes, the charter of the corporation is void, and all powers conferred by law upon the corporation are declared inoperative, including the power to sue in court. See Transpolymer Indus., Inc. v. Chapel Main Corp., 582 A.2d 936, 1990 WL 168276, at *1 (Del. 1990) (stating that, when corporation's charter was revoked under section 510, corporation lost any standing to pursue appeal in court).
Nevertheless, under Del. Code Ann. tit. 8, § 278, corporations that have expired "by their own limitation or are otherwise dissolved" continue for three years from such expiration for some purposes, including prosecuting and defending suits. It appears that Delaware courts apply this section to corporations the charters of which have been repealed for failure to pay corporate franchise taxes. See Darley Liquor Mart, Inc. v. Bechtel, No. 81C-JL-78, 1982 WL 593130, at *1 (Del.Super.Ct. Mar. 19, 1982); Frederic G. Krapf Son v. Gorson, 243 A.2d 713, 715 (Del. 1968). Even assuming, however, that section 278 continued Metropolitan Interconnect Corporation's capacity to sue for three years after its charter was voided for nonpayment of taxes, that three-year period expired in March of 2001, well before the present suit was filed. Metropolitan Interconnect Corporation therefore also lacks capacity to sue in this Court under Rule 17(b). Although plaintiff argues that a state cannot impose a statutory requirement as a condition precedent to filing suit in a federal court, plaintiff does not address its lack of capacity to sue under the Federal Rules of Civil Procedure. Because there is no genuine issue as to whether plaintiff exists as an entity under the laws of the state of Delaware, under which it alleges it was organized, plaintiff lacks capacity to sue in this Court.
b. The Merits of Plaintiff's Claims
Even if plaintiff has capacity to sue in this Court, the Court finds that summary judgment in defendants' favor is warranted. Plaintiff's complaint appears to state three causes of action, alleging that defendants violated the Louisiana Unfair Trade Practices Act, LA.REV.STAT. ANN. § 51:1401, et seq., 42 U.S.C. § 1983, and the Sherman Anti-Trust Act, 15 U.S.C. § 1 et seq. The LUTPA protects only consumers and business competitors. See Tubos de Acero de Mexico, S.A. v. Am. Int'l Inv. Corp., 292 F.3d 471, 480 (5th Cir. 2002); Cashman Equip. Corp. v. Acadian Shipyard, Inc., No. CIV.A. 01-2411, 2002 WL 1433876, at *1-2 (E.D. La. June 28, 2002) (noting that, although the Louisiana First Circuit Court of Appeal has held that LUTPA affords a private right of action beyond consumers and competitors, this Court is bound by the United States Court of Appeals for the Fifth Circuit's determination in Tubos). Because plaintiff has not alleged or produced evidence that it is a consumer of defendants' services or a business competitor of defendants', the LUTPA does not apply. See id. Further, plaintiff has not alleged a basis for state action, which is necessary to state a claim under 42 U.S.C. § 1983. Because plaintiff has not alleged or produced evidence of state action, it may not obtain relief under Section 1983. 42 U.S.C. § 1983. Finally, an allegation of conspiracy or of monopolization is necessary to state a claim under either Section 1 or Section 2 of the Sherman Act. Because plaintiff has not alleged or produced evidence of a conspiracy or of any form of monopolization, plaintiff has not stated a claim under the Sherman Act. See 15 U.S.C. §§ 1, 2. Because plaintiff does not state any other causes of action and has not produced evidence that would raise a genuine issue of fact on any of the claims it did plead, summary judgment in defendants' favor is warranted.
In its opposition to defendants' motion for summary judgment, plaintiff relies on Scalise v. Nat'l Utility Serv., Inc., 120 F.2d 938 (5th Cir. 1941), to assert that injunctive relief is proper when a defendant has applied for a corporate charter in a plaintiff's name to prevent that plaintiff from prosecuting a suit against defendant in state court. Id. at 940. Plaintiff's reliance on Scalise is misplaced because the Scalise court was interpreting and applying Florida law, not Louisiana law. As a federal court sitting in diversity, the Court applies Louisiana law. Woodfield v. Bowman, 193 F.3d 354, 359 n. 7 (5th Cir. 1999). Plaintiffs have not produced any Louisiana authority that supports its position.
The Court recognizes that Louisiana protects trade names from infringement as part of the law of unfair competition. Gulf Coast Bank v. Gulf Coast Bank Trust Co., 652 So.2d 1306, 1312 (La. 1995). To sustain a cause of action for infringement of a trade name, however, a plaintiff must prove that it has a protectable interest in a trade name, which it acquires by actually using a distinctive name. Id. at 1313. A name may be inherently distinctive, or it may become distinctive by acquiring secondary meaning. Id. Plaintiff, however, has made no effort to prove that it has a protectable property right in the name Metropolitan Interconnect. Accordingly, it cannot sustain a claim for infringement of a trade name.
The Court also recognizes that Louisiana's general tort statute states that "Every act whatever of man that causes damage to another obliges him by whose fault it happened to repair it." LA. CIV. CODE ANN. art. 2315; see Prudhomme v. Procter Gamble Co., 800 F. Supp. 390, 396 (E.D. La. 1992) (finding that plaintiff sufficiently alleged a claim under article 2315 when it "allege[d] facts of damage, and link[ed] the occurrence of that damage to defendants"). Even assuming that plaintiff alleged a breach of this general tort duty by alleging that defendants obtained a corporate charter in the name under which plaintiff originally sued them in state court, plaintiff has failed to sustain its summary judgment burden on a claim under article 2315. Damage is an element of an article 2315 claim. Defendants' motion challenges plaintiff's assertion that defendants' actions caused damage to plaintiff, and it is therefore incumbent on plaintiff to come forward with evidence, not argument, that they have suffered damage. Plaintiff has failed to do so. Plaintiff has not demonstrated, for example, that it tried to obtain a certificate of authority to transact business in Louisiana as Metropolitan Interconnect, Inc. and was unable to do so because of defendants' earlier registration. Nor has plaintiff shown that it attempted and was unable to obtain a certificate of authority to transact business under a similar name, such as Metropolitan Interconnect Corporation, which is apparently the true name of the Delaware corporation plaintiff represents itself to be. On the contrary, instead of demonstrating that defendants' actions caused damage, plaintiff asserts that it "is in the process of curing the defects" defendants raise as to its status in both Delaware and Louisiana. ( See Pl.'s Mem. Opp. Defs.' Mot. Summ. J. at 6). Because plaintiff has not produced any evidence that it was damaged by defendants' actions, it has failed to satisfy its summary judgment burden to support a cause of action under article 2315.
B. Motion for Sanctions
1. Applicable Law
Rule 11 provides that when an attorney submits a pleading to the court, he certifies to the best of his knowledge, information, and belief that (1) the pleading is not interposed for any improper purpose, such as harassment, unnecessary delay, or increased costs of litigation; (2) the pleading is warranted by existing law or a good faith argument for modification or reversal of existing law; and (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. FED. R. CIV. P. 11 (b); Childs v. State Farm Mutual Ins. Co., 29 F.3d 1018, 1023 (5th Cir. 1994); American Airlines, Inc. v. Allied Pilots Ass'n, 968 F.2d 523, 529 (5th Cir. 1992). This means that an attorney must make a reasonable inquiry into the facts and the law underlying a paper he or she submits to the Court. Mercury Air Group, Inc. v. Mansour, 237 F.3d 542, 548 (5th Cir. 2001). The Court may impose appropriate sanctions, including attorneys' fees and costs, on an attorney who files a pleading in violation of Federal Rule of Civil Procedure 11. See id. When a reasonable amount of research would have revealed that a party's position is groundless, Rule 11 sanctions are appropriate. Jordaan v. Hall, 275 F. Supp. 2d 778, 787 (N.D. Tex. 2003).
Rule 11 sets out strict procedural requirements for motions for sanctions. First, the motion must comply with the safe harbor provision of Rule 11. Specifically, the Rule contains a "safe harbor" provision that directs that a motion for sanctions "shall be served as provided in Rule 5, but shall not be filed with or presented to the court unless, within 21 days after service of the motion (or such other period as the Court may prescribe), the challenged [pleading] is not withdrawn or appropriately corrected." FED. R. CIV. P. 11(c) (1) (A). Furthermore, "[a] motion for sanctions under this rule shall be made separately from other motions or requests." Id.
2. Analysis
Defendants argue that sanctions should be imposed on plaintiff's counsel because plaintiff's complaint misrepresents that Metropolitan Interconnect, Inc. is a Delaware corporation. Defendants also move for sanctions on the ground that plaintiff's claims under LUTPA, 42 U.S.C. § 1983 and the Sherman Act are not warranted by existing law or a good faith argument for modification or reversal of existing law and thus were imposed for an improper purpose. Plaintiff asserts that its action is legally proper and that it should not be sanctioned under Rule 11.
The Court does not find that plaintiff's counsel's conduct rises to the level of a sanctionable Rule 11 violation. Plaintiff's complaint does allege that Metropolitan Interconnect, Inc. is a corporation that is organized and exists under the laws of Delaware. Plaintiff now admits that it used the wrong name in its complaint and that a corporation with a similar name, Metropolitan Interconnect Corporation, was organized and existed in Delaware but that its charter was voided for nonpayment of taxes. Under these circumstances, the Court finds that plaintiff's allegation that it was organized and "exists" in Delaware, while not accurate, is not an error of such magnitude as to be sanctionable under Rule 11. Nor is it the kind of violation that requires sanctions to deter repetition. See Fed.R.Civ.P. 11(c) (2) (limiting sanctions imposed for violations of Rule 11 "to what is sufficient to deter repetition of such conduct or comparable conduct by others similarly situated").
As for defendants' other allegations, the Court does not find that an improper purpose underlies plaintiff's complaint. Plaintiff had a colorable claim against defendants under article 2315, see Prudhomme, 800 F. Supp. at 396, but has failed to satisfy its summary judgment burden. Plaintiff had arguable support for its LUTPA claim, considering the split in the Louisiana Circuit Courts of Appeal on whether the LUTPA affords a private right of action beyond consumers and competitors. See Cashman Equip. Corp., 2002 WL 1433876, at *1 (noting circuit split). Plaintiff's § 1983 claim involved an error of law, which the Court is convinced "is the product of . . . misguided legal research, rather than a failure to attempt a reasonable inquiry into the law or an intent to harass." Arceneaux v. Amstar Corp., No. Civ.A. 03-3588, 2004 WL 574718, at *8 (E.D. La. Mar. 22, 2004). Given the complexity of the Sherman Act, the Court does not find plaintiff's effort to assert a claim under the Sherman Act to be sanctionable under Rule 11. See Smith Intern. v. Texas Commerce Bank, 844 F.2d 1193, 1199-1200 (5th Cir. 1988) (declining to find that an erroneous legal theory necessarily warranted sanctions).
Further, defendants' own behavior causes the Court to question defendants' request for sanctions. The tone of defendants' brief is highly accusatory, and its language is excessively caustic. Further, defendants do not dispute that they did business with a company named Metropolitan Interconnect yet they obtained a corporate charter in that name, the very name that plaintiff used to do business with them and under which plaintiff sued them in state court for unpaid fees. Defendants assert that they obtained this corporate charter "as compelling demonstrative evidence for a hearing on the pending exceptions in the state court suit that not only had the plaintiff not been registered as a foreign corporation in Louisiana, it had not even bothered to protect the name it used when it pretended that it was a corporation." (Defs.' Mem. Mot. for Sanctions at 6). Once defendants obtained a certification that no company named Metropolitan Interconnect, Inc. was registered to transact business in Louisiana, they had sufficient documentation to demonstrate that plaintiff was not registered to transact business in Louisiana and therefore was barred from bringing suit by LA.REV.STAT. 12:314. It is unclear why it was also necessary for defendants, to prevail on their exception, to obtain a corporate charter in that name themselves, particularly considering that defendants do not even suggest that they actually intend to transact business under that name. Defendants' resort to such a dubious tactic, whether actionable or simply a sharp practice, causes the Court to question their motive for seeking sanctions here. Based on the totality of the circumstances, the Court does not find that sanctioning plaintiff's counsel will further the policy behind Rule 11.
III. CONCLUSION
For the foregoing reasons, the Court GRANTS defendants' motion for summary judgment and DENIES defendants' motion for Rule 11 sanctions.