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NorMexSteel, Inc. v. Flynn


November 22, 2006


The opinion of the court was delivered by: Hon. Barry Ted Moskowitz United States District Judge


Defendant has filed a motion for costs and fees [Doc. #90]. For the reasons discussed below, Defendant's motion is GRANTED IN PART AND DENIED IN PART.


In May 2006, Plaintiffs NorMexSteel, Inc. ("NorMex"), Joann Hunter, and Douglas Payne filed an amended complaint alleging six causes of action against Defendant Charles Flynn individually, as well as in his capacity as trustee of the Taurus Trust and as an officer and director of Baiaverde Investment Corp. The complaint alleged that Defendant and Terry Hunter, a consultant to NorMex, entered an agreement whereby Plaintiffs Hunter and Payne pledged their NorMex stock to Defendant in exchange for his procuring investor financing. Under the alleged agreement, Defendant was to hold the shares in escrow until securing investors, but, according to Plaintiffs, Defendant instead sold the shares on the open market without fulfilling his promise. Plaintiffs moved for a preliminary injunction enjoining Defendant from selling or otherwise trading the shares they maintained he fraudulently obtained.

After an evidentiary hearing, the Court issued its Findings of Fact and Conclusions of Law Denying Plaintiffs' Motion for Preliminary Injunction ("Order"). In denying Plaintiffs' request, the Court found Plaintiffs' version of the events implausible, full of inconsistencies, and contradicted by several exhibits. Specifically, the Court held that the evidence showed Plaintiffs Hunter and Payne were not bona fide plaintiffs because they were not the true owners of the NorMex stock at issue. Further, the Court concluded that Plaintiffs failed to properly state a single cause of action displaying a likelihood of success on the merits which would warrant their request for equitable relief.

Shortly after the Court issued its order, but before Defendant filed his answer or a motion for summary judgment, Plaintiffs voluntarily dismissed the case without prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(i).*fn1

Defendant brings the current motion for costs in the amount of $5,458.54 and fees totaling $168,875.50.


A. Entitlement to Costs

Defendant asserts entitlement to costs "as of course" because he is a "prevailing party" within the meaning of Rule 54(d)(1). The Court agrees.

The Court retains jurisdiction to consider collateral issues, including motions for costs and fees, even after an action has been voluntarily dismissed by a plaintiff. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 395-96 (1990). Rule 54(d)(1) provides that "costs . . . shall be allowed as of course to the prevailing party unless the court directs otherwise." Accordingly, Defendant's recovery of costs necessarily hinges upon whether he is a "prevailing party" by reason of Plaintiffs' voluntary dismissal of the action without prejudice.

There are two divergent views as to whether a defendant becomes a "prevailing party" when a plaintiff voluntarily dismisses his suit without prejudice pursuant to Rule 41(a)(1)(i). In some circuits, a litigant cannot attain "prevailing party" status absent a victorious adjudication on the merits or its practical equivalent -- a voluntary dismissal with prejudice.*fn2 However, in the Ninth Circuit, classification as a "prevailing party" is not restricted to litigants prevailing after a trial on the merits. Corcoran v. Columbia Broadcasting System, 121 F.2d 575, 576 (9th Cir. 1941). Instead, where a defendant is put to the expense of opposing a preliminary matter and a plaintiff then voluntarily dismisses his claims without amendment and without prejudice, the defendant has been deemed a "prevailing party within the spirit and intent" of the governing statute or rule, in this case, Rule 54(d). Id.; Kollsman v. Cohen, 996 F.2d 702, 706 (4th Cir. 1993) (citing Corcoran in granting costs to defendant under Rule 54(d) when plaintiff voluntarily dismissed action); Pacific Vegetable Oil Corp. v. S/S Shalom, 257 F. Supp. 944, 953 n. 5 (S.D.N.Y. 1966) (same).

Although the parties cite the potentially meritorious positions taken by other circuits as support for their motions, Corcoran is controlling precedent in the Ninth Circuit and Defendant is therefore a "prevailing party" within the meaning of Rule 54(d)(1). Here, Defendant successfully opposed Plaintiffs' request for a preliminary injunction, an issue of central importance to the underlying matter, ultimately leading Plaintiffs to voluntarily dismiss their suit. See Corcoran, 121 F.2d at 576; All American Distributing Co. v. Miller Brewing Co., 736 F.2d 530, 532 (9th Cir. 1984) (finding conferment of "prevailing party" status proper where, even without adjudication on merits, Defendant successfully opposed a preliminary injunction request and Plaintiff then voluntarily dismissed all other claims). More importantly, Plaintiffs' dismissal under the present factual context operates, in a very practical sense, as a dismissal with prejudice. Given the Court's conclusion that Plaintiffs Hunter and Payne were not bona fide litigants because they were not the true owners of the disputed NorMex securities, it appears these particular Plaintiffs could never again bring suit against Defendant under the same facts.*fn3 This scenario serves as a de facto adjudication on the merits and further bolsters Defendant's entitlement to "prevailing party" status. Therefore, because Defendant was put to the expense of defending on a preliminary matter and because he is a "prevailing party" within the "spirit and intent" of the Rule, Defendant is entitled to costs "as of course." Corcoran, 121 F.2d at 576; Fed. R. Civ. P. 54(d)(1). Accordingly, Defendant is awarded costs in an amount to be determined by the Clerk.

B.) Entitlement to Fees

The "American Rule" provides that each party bear the cost of its attorney's fees regardless of the outcome of the litigation. Alyeska Pipeline Co. v. Wilderness Soc'y, 421 U.S. 240, 247 (1975). As a general matter, prevailing litigants are only entitled to collect attorney's fees where there is explicit statutory authorization or a binding contractual provision providing for such awards. Key Tronic Corp. v. United States, 511 U.S. 809, 814-15 (1994). However, even absent such a statutory grant or contractual right, the Court retains the inherent power to shift fees in its discretion where a party acted in bad faith, vexatiously, wantonly, or for oppressive purposes. Chambers v. NASCO, 501 U.S. 32, 45-46 (1991); accord Fink v. Gomez, 239 F.3d 989, 993-94 (9th Cir. 2001) (court's inherent power to sanction available upon finding that party acted in bad faith or engaged in "conduct tantamount to bad faith," including recklessness when combined with an additional factor such as frivolousness, harassment, or an improper purpose). It is this power that Defendant asks the Court to invoke in awarding him fees. The Court declines to do so.

The law requires a party's conduct meet a lofty level of impropriety before it is dubbed "bad faith" and that standard has not been met in this case. As noted in the Court's prior order, there is reason to suspect that all parties to the suit were involved in some sort of international stock scheme. (Order at 5-6.) The Court denied Plaintiffs' request for equitable relief based on their somewhat dubious claim to ownership of the NorMex stock at issue. However, while Plaintiffs were not found to have a true ownership interest, it is clear that Defendant's sale of the stock was suspect as he offered no credible evidence that he actually paid for the shares. The Court is not convinced of Defendant's own virtuousness such that he should be entitled to fees in contradiction of the longstanding "American Rule" against fee shifting. As such, the Court will not invoke its discretionary power to award fees to Defendant.


For the above stated reasons, the Court GRANTS Defendant's motion for costs and DENIES Defendant's motion for fees. The Defendant is directed to file a bill of costs with the Clerk in accordance with Local Rule 54.1. The Clerk shall enter judgment accordingly.


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