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H.P.D. Consolidation Inc. v. Pina

United States District Court, N.D. California

March 20, 2017

H.P.D. CONSOLIDATION, INC., Plaintiff,
v.
JOSE PINA, et al., Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR ATTORNEYS' FEES DOCKET NO. 152

          EDWARD M. CHEN United States District Judge.

         I. INTRODUCTION

         Plaintiff 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 (mail fraud).

         Pending 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.

         II. BACKGROUND

         A. Factual Background

         Plaintiff 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. Id.

         In 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).

         The following image depicts the sequence of events described above:

         (Image Omitted)

         After 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. Id.

         On 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 Shemali would

(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 wine.

         Stravinski 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).

         On 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.

         Subsequently, 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.

         B. Procedural History

         Plaintiff 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.

         In 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.

         This 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 enterprise.

Id.

         Plaintiff 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.

         On 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.

         Before 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.

         III. DISCUSSION

         A. Sanctions Under 28 U.S.C. § 1927

         1. Legal Standard

         Section 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).

         Sanctions 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)).

         Plaintiff 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 specificity.

         2. Greater Specificity to Each ...


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