United States District Court, N.D. California
H.P.D. CONSOLIDATION, INC., Plaintiff,
JOSE PINA, et al., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION FOR ATTORNEYS' FEES DOCKET NO.
M. CHEN United States District Judge.
H.P.D. Consolidation Inc., a provider of wine storage and
logistics, brought the present action. Defendants are Jose
Pina, aka Jose Piedra (“Pina”); Edwin Whitefield
(“Whitefield”); David Borges
(“Borges”); Michael Shemali
(“Shemali”); Wines of the World, LLC, dba Hooked
on Wine (“WOW”); Tri Cities Liquor & Spirits,
LLC, dba Mid Columbia Wine & Spirits (“Tri
Cities”); Hi-Time Wine Cellars (“Hi-Time”);
Matt Myers, individually and dba Matt Myers Wine
(“Myers”); Sandra Rodriguez and Eduardo Rodriguez
(“the Rodriguezes”); Sandi's Pet Place; and
Belmont Wine Exchange, LLC (“Belmont Wine”)
(together, Shemali, WOW, Tri Cities, Hi-Time, Myers, the
Rodriguezes, Sandi's Pet Place, and Belmont Wine are
“Receiving Defendants”). Plaintiff alleges that
Defendants engaged in a wine theft ring in violation of the
Racketeer Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 2315 (interstate
transportation of stolen property), and 18 U.S.C. § 1341
before the Court is Receiving Defendants' motion for
attorneys' fees under 28 U.S.C. § 1927 and the
Court's inherent power. Receiving Defendants allege that
Plaintiff and Plaintiff's Counsel unreasonably and
vexatiously multiplied the proceedings in this action; and
that they initiated and pursued this action in bad faith.
This Court grants Receiving Defendants' motion for
attorneys' fees in the amount of $23, 737.40 under 28
U.S.C. § 1927 but denies request for sanctions under the
Court's inherent power.
HPD Consolidation provides wine storage and logistics to the
wine industry. Docket No. 135 (“Second Amended
Complaint” or “SAC”) ¶ 19. According
to the SAC, the Receiving Defendants were involved in an
enterprise to steal from Plaintiffs facility and then sell
the wines through various outlets. Plaintiff discovered that
the wine was stolen when an employee of a wine broker
approached Plaintiff stating that she had seen Plaintiffs
wine for sale on Hi-Time's website. Id. ¶
20. Subsequently, Plaintiff investigated the wine theft.
particular, Plaintiff alleges that Defendants formed,
operated, and maintained a criminal enterprise to steal wine
from storage facilities in Napa County, California, including
Plaintiffs facility. Id. ¶ 22(a). Specifically,
Plaintiff alleges that Defendant Pina took the wine from the
facility on at least five occasions. Id. ¶
22(b), (f). Pina, a night shift supervisor at Plaintiffs
facility, removed the wine from Plaintiffs facility from 2013
to the early part of 2014. Id. ¶ 22(b).
Defendant Whitefield assisted and facilitated Defendant Pina
in the theft by using Whitefield's truck to transport
stolen wine to Whitefield's shop. Id.
Subsequently, Defendants Pina and Whitefield transported the
wine to Defendant Borges, a Senior Vice President in
information technology at Bank of America. Id.
¶ 22(b), (d). Defendant Borges sold the transported wine
to Defendant Shemali, a wine broker, and his entities (WOW
and Tri-Cities), who in turn sold a portion of the wine to
Defendants Belmont Wine and Myers. Id. ¶ 22(g).
Myers stored the purchased wine at Sandi's Pet Place.
Id. ¶ 22(r). Myers also transported the wine at
Sandi's Pet Place to a storage locker at Hi-Time, an
online wine seller, or back to his home in Arizona. See
Id. ¶ 22(p).
following image depicts the sequence of events described
the theft of wine was discovered and presumably reported to
law enforcement, Detective Brad Chambers of the Napa County
Sherriff's office called Defendant Shemali on March 17,
2014, and notified him that the wine he purchased from Borges
was stolen. Docket No. 152-24 Shemali Declaration ¶ 5;
Docket No. 152-21 Khouri Declaration ¶ 5; Docket No.
152-23 Myers Declaration ¶ 7. Defendant Shemali then
called Defendant John Khouri of Belmont Wine and Defendant
Myers to notify them of the stolen wine. Id.
Defendants Myers and Belmont Wine agreed to return the wine
remaining in their possession, and, in exchange, Shemali
agreed to reimburse them for the amount paid for the wine.
March 26, 2014, Peter Stravinski, the owner of Plaintiff
H.P.D. Consolidation, and Defendant Shemali spoke by
telephone regarding the stolen wine. After the call,
Stravinski sent an email to Defendant Shemali memorializing
the conversation between Stravinski and Defendant Shemali.
See Shemali Declaration Ex. A; Docket No. 157
Stravinski Declaration ¶ 10. The email provides that
(a) send Stravinski complete list of the wines Defendant
Shemali and his companies obtained from Borges, Whitefield,
and Pina; (b) provide a list of all people and entities to
whom stolen wine was sold; (c) send copies of all checks with
which Shemali paid for the stolen wine; (d) return the stolen
wine held by Shemali and his companies; (e) advise Defendant
Myers and Belmont Wine Exchange that they were in possession
of stolen wine; and (f) make commercially reasonable efforts
to recompense Myers and Belmont Wine Exchange for the stolen
Declaration ¶ 10. The email further notes that
the goal of returning the wine and notifying Defendants Myers
and Belmont Wine of the stolen wine is to “quickly and
completely demonstrate that none of us knowingly traffics in
stolen property.” Shemali Declaration Ex. A ¶ (f).
April 4, 2014, Defendant Shemali and Stravinski, accompanied
by counsel for HPD, Carl Motschiedler, met in Washington to
discuss the disposition of the wine. See Shemali
Declaration ¶ 7; Stravinski Declaration ¶ 18;
Docket No. 156 Motschiedler Declaration ¶ 3. At the
meeting, Shemali provided Plaintiff with spreadsheets
detailing his transactions with Borges. SAC ¶ 22(i);
id. Exs. B, C.
Plaintiff spoke with Myers regarding Myers' role in the
wine theft. See SAC ¶ 22(p). Myers stated
“Plaintiff would have a difficult time
'proving' that the stolen wine was ever in Myers'
possession because he made sure the shipping labels were not
in his name.” Id.
filed this lawsuit on November 19, 2015. See Docket
No. 1 (“Original Complaint”). Receiving
Defendants moved to dismiss Plaintiff's Original
Complaint on February 25, 2016. See Docket No. 89
(“Motion to Dismiss the Original Complaint”).
Rather than opposing this motion, Plaintiff filed an amended
complaint. See Docket No. 96 (“First Amended
Complaint” or “FAC”). Receiving Defendants
moved to dismiss the FAC on April 4, 2016. See
Docket No. 102.
response to Plaintiff's opposition, counsel for Receiving
Defendants sent a letter to Plaintiff's Counsel.
See Docket No. 152-5 Foote Declaration Ex. 4. The
letter warned that, pursuant to Fed.R.Civ.P. 11(c)(2),
sanctions would be filed against Plaintiff's Counsel
because the FAC and the opposition to the motion to dismiss
were without any evidentiary support. See id. The
motion proceeded to hearing.
Court dismissed the FAC but granted Plaintiff leave to amend.
See Docket No. 134 (September 22, 2016 Civil
Minutes). This Court required Plaintiff to provide
in any further amended complaint:
greater specificity with regard to each Defendant's
knowledge of and participation in the alleged enterprise;
allegations as to the enterprise separate from the alleged
racketeering; facts supporting the alleged mail fraud; and,
where Plaintiff wishes to state a claim under 18 U.S.C.
§ 1962(b) and (c), facts showing the relevant Defendant
had interest in, control over, and/or conducted the alleged
filed the Second Amended Complaint on October 14, 2016.
See SAC. Receiving Defendants moved to dismiss the
SAC and served a Rule 11 motion seeking monetary sanctions in
the form of attorneys' fees. See Foote
Declaration ¶ 7. Pursuant to Rule 11 Safe Harbor
Provision, Fed.R.Civ.P. 11(c)(2), Receiving Defendants
demanded that Plaintiff withdraw the SAC within twenty-one
days and dismiss all Receiving Defendants from the action.
See Foote Declaration, Ex. 5.
November 28, 2016, Plaintiff's Counsel filed a request to
voluntarily dismiss the action against all Receiving
Defendants without prejudice. See Docket No. 150. On
November 29, 2016, this Court issued an order dismissing the
case. See Docket No. 151.
this Court is Receiving Defendants' motion to recover
attorneys' fees pursuant to 28 U.S.C. § 1927 and the
Court's inherent power. See Docket No. 152
(“Motion for Attorneys' Fees). Receiving Defendants
contend sanctions are appropriate because Plaintiff's
Counsel unreasonably and vexatiously multiplied the
proceedings in this action and initiated and pursued this
action in bad faith. Id.
Sanctions Under 28 U.S.C. § 1927
1927 provides for attorneys' fees when an attorney
multiplies proceedings unreasonably and vexatiously.
See 28 U.S.C.A. § 1927 (West). Section 1927
sanctions do not apply to initial proceedings, but instead
apply to subsequent procedures because such sanctions are
designed to deter unnecessary multiplication of proceedings
and tactics. See In re Keegan Mgmt. Co., Sec.
Litig., 78 F.3d 431, 435 (9th Cir. 1996).
may be awarded under Section 1927 when attorney behaves
recklessly and frivolously. See Fink v. Gomez, 239
F.3d 989, 993 (9th Cir. 2001); see also B.K.B. v. Maui
Police Dept., 276 F.3d 1091, 1108 (9th Cir. 2002)
(holding that recklessness plus knowledge or asserting a
frivolous argument which multiplies judicial proceedings
sufficiently supports an award of sanctions under Section
1927). Recklessness means “a departure from ordinary
standards of care that disregards a known or obvious risk of
material misrepresentation.” See In re
Girardi, 611 F.3d 1027, 1038 n.4 (9th Cir. 2010).
Frivolousness “should be understood as referring to
legal or factual contentions so weak as to constitute
objective evidence of improper purpose.” Id.
at 1062. A frivolous filing is one “that is both
baseless and without reasonable competent inquiry.”
Id. (quoting Holgate v. Baldwin, 425 F.3d
671, 677 (9th Cir. 2005)).
acted recklessly and frivolously in filing the SAC. In the
Court's order dismissing FAC (“the Court's
Order”), the Court had required Plaintiff to properly
amend its complaint to assert (1) greater specificity
regarding each Defendant's knowledge of and participation
in the alleged enterprise; (2) allegations as to the
enterprise separate from the alleged racketeering; (3) facts
supporting the alleged mail fraud; and (4) facts showing the
relevant Defendant had interest in, control over, and/or
conducted the alleged enterprise. See September 22,
2016 Civil Minutes. However, in filing the SAC,
Plaintiff failed to comply with all of the Court's
directions; much of the SAC continues to lack the requisite
Greater Specificity to Each ...