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Optimal Markets, Inc. v. Salant

California Court of Appeals, Sixth District

November 26, 2013

David Salant et al., Defendants and Appellants, CARL LIPPENBERGER et al., Objectors and Respondents.

Superior Court of Santa Clara County, No. CV147711 The Honorable James P. Kleinberg Judge

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MITCHELL COMPANY Brian E. Mitchell for Defendants and Appellants.

Law Offices of Carl Lippenberger and Carl Lippenberger for Objectors and Respondents.

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This appeal arises from an order in which the trial court, after confirming an arbitration award in favor of defendants, denied a separate motion brought by some of the prevailing parties for an award of sanctions against plaintiff’s attorneys. The sanctions motion was made pursuant to Code of Civil Procedure section 128.7 on the grounds that the case was “pursued... for an improper purpose, and that the claims... were not supported by law, nonfrivolous extensions of the law, or fact.”[1] The trial court held that sanctions under section 128.7 were precluded because plaintiff’s attorneys had been substituted after the filing of the complaint in court and after the judicial action had been stayed pending binding arbitration; therefore, plaintiff’s attorneys had not “present[ed] to the court” (§ 128.7, subd. (b)) any pleadings or arguments, as is required by the applicable statute. A similar motion for sanctions brought under Rule 11 of the Federal Rules of Civil Procedure (28 U.S.C.; Rule 11)—the federal statute upon which section 128.7 is based—had previously been denied by the arbitrator for lack of jurisdiction.

On appeal, the parties who had moved for sanctions in the trial court assert that the court erred in finding that section 128.7 did not authorize an award of sanctions. They urge that plaintiff’s attorneys, in advancing frivolous claims in the binding arbitration on behalf of their clients, advocated a meritless complaint before the court within the meaning of the section 128.7, thereby warranting the imposition of sanctions under that statute.

We conclude that the court did not err. Accordingly, we will affirm the order denying the motion for sanctions.


On July 17, 2009, Optimal Markets, Inc. (Optimal)[2] filed a complaint in the court below against a number of parties (collectively, Defendants), [3] namely, FTI Consulting, Inc. (FTI); Auction Technologies, LLC (Auction, LLC); Auction Technologies, Inc. (Auction, Inc.); Xonomic Inc.; David

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Salant (Salant); Harold Lea (Lea); and Paul Milgrom (Milgrom).[4] The next month, on August 25, 2009, the parties entered into a written agreement to submit their dispute to binding arbitration pursuant to the JAMS Comprehensive Arbitration Rules and Procedures. On September 10, 2009, the court entered an order staying the action, pending the conclusion of arbitration proceedings.

Binding arbitration occurred over eight days between February 2010 and March 2010. The matters arbitrated consisted of Optimal’s seven causes of action alleged in the complaint it had filed in superior court (misappropriation of trade secrets, common law unfair competition, statutory unfair competition [Bus. & Prof. Code, § 17200], breach of contract, breach of fiduciary duty, breach of covenant of good faith and fair dealing, and declaratory relief);[5] the counterclaims of Salant and Lea for tortious interference with prospective economic advantage and tortious interference with contract (collectively, the tortious interference counterclaims); and the counterclaims of all Defendants for declaratory relief.[6] The arbitrator in June 2010 issued an interim award in which he, inter alia, denied each of Optimal’s claims. Later that month, Defendants filed a motion for attorney fees and costs and a motion for sanctions. On July 15, 2010—the day its opposition to the fee and sanctions motions was due—Optimal filed for bankruptcy protection. The stay of further arbitration proceedings was vacated after the United States Bankruptcy Court for the Northern District of California closed Optimal’s bankruptcy case on September 20, 2010.

In a 46-page final arbitration award dated May 13, 2011, [7] the arbitrator made final his denial of each of Optimal’s claims; denied the tortious interference counterclaims of Salant and Lea; granted Defendants’ counterclaim for declaratory relief; and granted Defendants’ requests for attorney fees and costs, awarding Defendants $2,563,487 in attorney fees and $221,225 in costs and expenses to be paid by Optimal.[8] The attorney fees and costs were awarded by the arbitrator under two alternative theories: (1) they were awardable under the California Uniform Trade ...

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