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Frost v. LG Electronics Inc.

United States District Court, N.D. California, San Jose Division

June 27, 2017

A. FROST, ET AL., Plaintiffs,
v.
LG ELECTRONICS INC., et al., Defendants.

          ORDER DENYING MOTION FOR SANCTIONS [RE: ECF 85]

          BETH LAB SON FREEMAN United States District Judge.

         Plaintiffs bring this class action suit alleging that the LG and Samsung defendants engaged in an unlawful conspiracy to fix and suppress compensation for their employees, violating section 1 of the Sherman Act, 15 U.S.C. § 1; the Cartwright Act, California Business & Professions Code §16720, et seq.; and the New Jersey Antitrust Act, N.J. Stat Ann. § 56:9-3. Compl., ECF 48. Before the Court is Defendants LG Electronics U.S.A. and LG Display America, Inc. (“LG”)'s motion for sanctions under Fed.R.Civ.P. 11 and 28 U.S.C. § 1927. Mot., ECF 85. Pursuant to Civ. L.R. 7-1(b), the Court finds LG's motion for sanctions suitable for submission without oral argument and hereby VACATES the hearing scheduled for July 13, 2017. For reasons set forth below, the Court DENIES the motion.

         I. BACKGROUND

         Plaintiffs' complaint alleges that no later than January 1, 2005, LG and other Samsung defendants engaged in an unlawful conspiracy to fix and suppress compensation for their employees, including their workforce in the United States. Compl. ¶¶ 1, 4 n.2, 45. According to the complaint, Plaintiff Frost was contacted via Linked In by a recruiter seeking to fill a position with Samsung, but who later informed Frost “I made a mistake! I'm not supposed to poach LG for Samsung!!! Sorry! The two companies have an agreement that they won't steal each other's employees.” Id. ¶ 79. Plaintiffs also allege that Plaintiff Ra was told by a manager at Samsung's finance department that “We do not hire people from LG.” Id. ¶ 80.

         According to LG, Plaintiffs' allegations are false because LG does not have a policy or prohibition against recruiting, “cold-calling, ” or hiring Samsung employees. Kliwinski Decl. ¶ 3, ECF 85-4; Lee Decl. ¶ 3, ECF 85-3. Specifically, LG asserts that LG United States has hired employees directly from Samsung-affiliated companies over the last 11 years. Kliwinski Decl. ¶ 5. In December 22, 2016, about a month after the complaint is filed, LG counsel provided Plaintiffs' counsel with evidence allegedly showing that LG does not have the policy or prohibitions against hiring Samsung employees. Mot. 4. However, Plaintiffs refused to withdraw or correct the complaint as requested by LG. Letter, ECF 85-1.

         II. LEGAL STANDARD

         A. Fed. R. Civ. Proc. 11

         Rule 11 of the Federal Rules of Civil Procedure imposes upon attorneys a duty to certify that they have read any pleadings or motions they file with the court and that such pleadings and motions are well-grounded in fact, have a colorable basis in law, and are not filed for an improper purpose. Fed.R.Civ.P. 11(b); Business Guides, Inc. v. Chromatic Comm. Enters., Inc., 498 U.S. 533, 542 (1991). If a court finds Rule 11(b) has been violated, the court may impose appropriate sanctions to deter similar conduct. Fed.R.Civ.P. 11(c)(1); see also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990) (“[T]he central purpose of Rule 11 is to deter baseless filings in district court.”). However, “Rule 11 is an extraordinary remedy, one to be exercised with extreme caution.” Operating Eng'rs Pension Trust v. A-C Co., 859 F.2d 1336, 1345 (9th Cir. 1988). Rule 11 sanctions should be reserved for the “rare and exceptional case where the action is clearly frivolous, legally unreasonable or without legal foundation, or brought for an improper purpose.” Id. at 1344. “Rule 11 must not be construed so as to conflict with the primary duty of an attorney to represent his or her client zealously.” Id.

         In determining whether Rule 11 has been violated, a “court must consider factual questions regarding the nature of the attorney's pre-filing inquiry and the factual basis of the pleading.” Cooter, 496 U.S. at 399. However, courts should “avoid using the wisdom of hindsight and should test the signer's conduct by inquiring what was reasonable to believe at the time the pleading, motion, or other paper was submitted.” Fed.R.Civ.P. 11 Advisory Comm. Notes (1993 Amendments). “[T]he imposition of a Rule 11 sanction is not a judgment on the merits of an action. Rather, it requires the determination of a collateral issue: whether the attorney has abused the judicial process, and, if so, what sanction would be appropriate.” Cooter, 496 U.S. at 396.

         In the Ninth Circuit, Rule 11 sanctions are appropriately imposed where: (1) a paper is filed with the court for an improper purpose; or (2) the paper is “frivolous.” Intamin Ltd. v. Magnetar Techs., Corp., 483 F.3d 1328, 1338 (Fed. Cir. 2007). A “frivolous” argument or claim is one that is “both baseless and made without a reasonable and competent inquiry.” Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1990)) (emphasis added). Accordingly, when sanctions are sought on the basis of a complaint, the Court must determine: “(1) whether the complaint is legally or factually ‘baseless' from an objective perspective, and (2) if the attorney has conducted ‘a reasonable and competent inquiry' before signing and filing it.” Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002).

         B.28 U.S.C. § 1927

         28 U.S.C. § 1927 provides that “[a]ny attorney . . . admitted to conduct cases in any court of the United States . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.” The statute is intended to deter harassing legal tactics and to compensate their victims. See Haynes v. City and Cty. of San Francisco, 688 F.3d 984, 987-88 (9th Cir. 2012). A court may award sanctions under § 1927 if the moving party shows (1) that opposing counsel acted “unreasonab[ly]”; (2) that, by doing so, counsel “multipl[ied] proceedings”; and (3) that counsel acted with subjective “bad faith.” MGIC Indem. Corp. v. Moore, 952 F.2d 1120, 1121 (9th Cir. 1991).

         While Rule 11 authorizes sanctions only for filings that were frivolous when they were made, see id., “Section 1927 imposes a continuing duty on counsel to dismiss claims that are no longer viable.” Burda v. M. Ecker Co., 2 F.3d 769, 778 (7th Cir. 1993); accord Trulis v. Barton, 107 F.3d 685, 692 (9th Cir. 1995) (holding that a district court abused its discretion by refusing to impose sanctions under § 1927 where the plaintiffs “vexatiously multiplied the proceedings” by forcing the defendant to move for summary judgment rather than dismissing their claims voluntarily after it became clear that they would fail).

         III. ...


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