Bank of New York Mellon v. City of Richmond, California et al

Filing 68

REPLY (re 55 MOTION for Sanctions ) filed byCity of Richmond, California, Gordian Sword LLC, Mortgage Resolution Partners L.L.C., Richmond City Council. (Attachments: # 1 Affidavit Declaration of Stacey Leyton, # 2 Exhibit A, # 3 Exhibit B, # 4 Exhibit C, # 5 Exhibit D, # 6 Exhibit E, # 7 Exhibit F)(Leyton, Stacey) (Filed on 12/20/2013)

1 STEPHEN P. BERZON (SBN 46540)
SCOTT A. KRONLAND (SBN 171693)
2 STACEY M. LEYTON (SBN 203827)
ERIC P. BROWN (SBN 284245)
3
Altshuler Berzon LLP
4 177 Post Street, Suite 300
San Francisco, CA 94108
5 Tel: [phone]
Fax: [phone]
6 E-mail: [e-mail]
Attorneys for Defendants City of Richmond, Richmond
7
City Council, Mortgage Resolution Partners LLC and
8 Gordian Sword LLC
WILLIAM A. FALIK (SBN 53499)
9 BRUCE REED GOODMILLER (SBN 121491)
City Attorney
100 Tunnel Rd
10 CARLOS A. PRIVAT (SBN 197534)
Berkeley, CA 94705
Assistant City Attorney
Tel: [phone]
11 CITY OF RICHMOND
Fax: [phone]
450 Civic Center Plaza
E-mail: [e-mail]
12
Richmond, CA 94804
Attorney for Defendants
Mortgage Resolution Partners LLC
13 Telephone: [phone]
Facsimile: [phone]
and Gordian Sword LLC
14 E-mail: [e-mail]
Attorneys for Defendants City of Richmond and
15
Richmond City Council
16
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
17
18 THE BANK OF NEW YORK MELLON (f/k/a The
Bank of New York) and THE BANK OF NEW
19 YORK MELLON TRUST COMPANY, N.A. (f/k/a
The Bank of New York Trust Company, N.A.), as
20 Trustees; U.S. BANK NATIONAL ASSOCIATION,
21 as Trustee; and WILMINGTON TRUST COMPANY
and WILMINGTON TRUST, NATIONAL
22 ASSOCIATION, as Trustees,
23
24

Plaintiffs,

Case No. CV-13-3664-CRB
DEFENDANTS’ REPLY IN SUPPORT
OF MOTION FOR RULE 11
SANCTIONS
Date: January 24, 2013
Time: 10:00 a.m.
Judge: Honorable Charles R. Breyer
Courtroom 6, 17th Floor

v.

CITY OF RICHMOND, CALIFORNIA, a
25 municipality; RICHMOND CITY COUNCIL;
26 MORTGAGE RESOLUTION PARTNERS LLC, a
Delaware limited liability company; and
27 GORDIAN SWORD LLC, a Delaware limited
liability company,
28
Defendants.
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1

TABLE OF CONTENTS

2 TABLE OF AUTHORITIES...........................................................................................................ii
3 INTRODUCTION...........................................................................................................................1
4 ARGUMENT ..................................................................................................................................1
5
I.
DEFENDANTS’ MOTION TO DISMISS DID NOT PRESENT AN
“UNSETTLED” ISSUE ..........................................................................................1
6
7

II.

THERE IS NO GOOD FAITH BASIS FOR DISTINGUISHING THIS CASE
FROM THE RELATED WELLS FARGO CASE..................................................5

8

III.

PLAINTIFFS MUST HAVE BEEN AWARE THAT THE COURT LACKED
JURISDICTION WHEN THEY REFUSED TO WITHDRAW THEIR
COMPLAINT..........................................................................................................7

IV.

THE SANCTION SOUGHT.................................................................................11

9
10

11 CONCLUSION .............................................................................................................................12
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
i
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1

TABLE OF AUTHORITIES

2

FEDERAL CASES

3 Aetna Life Insurance Co. v. Haworth,
300 U.S. 227 (1937) ..................................................................................................................3
4
5 Associated General Contractors of America v. City of Columbus,
172 F.3d 411 (6th Cir. 1999) .....................................................................................................2
6
Burlington v. Dague,
7
505 U.S. 557 (1992) ................................................................................................................11
8 Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384 (1990) ............................................................................................................7, 10
9
DeBauche v. Trani,
10
191 F.3d 499 (4th Cir. 1999) ...................................................................................................10
11
Federal Savings & Loan Insurance Corp. v. Molinaro,
923 F.2d 736 (9th Cir. 1991) ...................................................................................................10
12
13 Flast v. Cohen,
392 U.S. 83 (1968) ....................................................................................................................3
14
FrontierVision Operating Partners, L.P. v. Town of Naples, Maine,
15
No. 01-16-P-DMC, 2001 WL 220192 (D. Me. Mar. 7, 2001) ..................................................2
16
Gator.com Corp. v. L.L. Bean, Inc.,
398 F.3d 1125 (9th Cir. 2005) ...................................................................................................3
17
18 Hensley v. Eckerhart,
461 U.S. 424 (1983) ................................................................................................................11
19
In re Itel Securities Litigation,
20
791 F.2d 672 (9th Cir. 1986) ...................................................................................................10
21

Johnson v. Univ. of Rochester Medical Center,
715 F. Supp. 2d 427 (W.D.N.Y. 2010)......................................................................................8
22
23 Long v. Marubeni America Corp.,
406 F. Supp. 2d 285 (S.D.N.Y. 2005) .......................................................................................9
24
McChord v. Cincinnati, N.O. & Texas Pacific Railway Co.,
25
183 U.S. 483 (1902) ..................................................................................................................2
26 MedImmune, Inc. v. Genentech, Inc.,
549 U.S. 118 (2007) ..............................................................................................................2, 3
27
28 New Orleans Water Works Co. v. City of New Orleans,
164 U.S. 471 (1896) ............................................................................................................2, 10
ii
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 Prison Legal News v. Schwarzenegger,
608 F.3d 446 (9th Cir. 2010) ...................................................................................................12
2
Saint Francis College v. Al-Khazraji,
3
481 U.S. 604 (1987) (Brennan, J., concurring) .........................................................................9
4

Welbon v. Burnett,
Nos. C 07-4248 CRB, C 07-2992 CRB, C 08-123 CRB, 2008 WL 789896 (N.D. Cal. Mar. 24,
5
2008) (Breyer, J.)...................................................................................................................8, 9
6
Wells Fargo Bank v. City of Richmond,
7
Case No. 13-03663-CRB (N.D. Cal.)...............................................................................passim
8 Wells Fargo National Bank Association v. Vann,
No. C 12-05725 CRB, 2013 WL 791474 (N.D. Cal. Mar. 4, 2013) (Breyer, J.) ..................8, 9
9
10

FEDERAL STATUTES

11 42 U.S.C. §1981 ..............................................................................................................................9
12

STATE STATUTES

13 Cal. Code Civ. Proc. §1245.235 ......................................................................................................4
14

FEDERAL RULES

15 Fed. R. Civ. P. 11 ...................................................................................................................passim
16 Fed. R. Civ. P. 12 ...........................................................................................................................7
17
18
19
20
21
22
23
24
25
26
27
28
iii
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1

REPLY IN SUPPORT OF MOTION FOR RULE 11 SANCTIONS

2

INTRODUCTION

3

California law makes legislative action a necessary prerequisite for the exercise of eminent

4 domain authority. As such, there is simply no good faith argument that a federal court has
5 jurisdiction to consider whether the exercise of such eminent domain power would be
6 constitutional when the requisite legislative action has not occurred. This is not an “unsettled”
7 issue. There is a United States Supreme Court case that is directly on point, and Plaintiffs have
8 never cited any case permitting the exercise of jurisdiction in such circumstances.
9

Plaintiffs Bank of New York Mellon, et al. (the “Banks”) must have been aware that the

10 Court lacked subject matter jurisdiction when they filed their complaint. To the extent that they
11 did not spot the lack of jurisdiction before they filed, it was made apparent to them by the legal
12 briefing and this Court’s decision that it lacked subject matter jurisdiction over the substantially
13 identical lawsuit, Wells Fargo Bank v. City of Richmond, Case No. 13-03663-CRB. Nonetheless,
14 the Banks rejected Defendants’ repeated requests that the Banks withdraw their complaint without
15 prejudice and required Defendants and the Court to expend resources to address an objectively
16 frivolous case. The Banks’ conduct can only be understood as an intimidation tactic by well17 financed parties to improperly use the federal courts to chill the on-going political and legislative
18 process in the City of Richmond. Sanctions are appropriate and necessary to deal with such
19 tactics.
ARGUMENT

20
21
22

I.

Defendants’ Motion to Dismiss Did Not Present an “Unsettled” Issue
In Trustees’ Opposition to Motion for Rule 11 Sanctions (Doc. 59) (“Opposition”), the

23 Banks argue that the issue presented by Defendants’ Motion to Dismiss (Doc. 28) is “unsettled.”
24 Opposition at 8, 11. This is not so. As Defendants have repeatedly demonstrated in this case and
25 in the related Wells Fargo case,1 federal courts lack jurisdiction to consider challenges to
26 ___________________________________
1
See Notice of Motion and Motion to Dismiss for Lack of Subject Matter Jurisdiction (Doc. 28);
Reply in Support of Motion to Dismiss (Doc. 42); Defendants’ Opposition to Motion for
27
Preliminary Injunction (Wells Fargo, Doc. 32); Defendants’ Notice of Motion and Motion to
Dismiss for Lack of Subject Matter Jurisdiction (Wells Fargo, Doc. 38); Defendants’ Reply
28
1
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 prospective government conduct requiring legislative action that has not occurred. Indeed, there is
2 a United States Supreme Court decision directly on point. In New Orleans Water Works Co. v.
3 City of New Orleans, 164 U.S. 471 (1896), the Supreme Court held that the federal courts may not
4 interfere “by any order, or in any mode” with a city council’s authority to exercise its legislative
5 powers before those legislative powers have been exercised, id. at 481; see also id. (“If an
6 ordinance be passed . . . the jurisdiction of the courts may then be invoked.” (emphasis supplied)).
7 The claim in New Orleans was exactly like the claim here in that the plaintiff alleged it would
8 suffer injury from an allegedly unconstitutional ordinance that had not yet been passed; the
9 Supreme Court held dismissal of the case was required.2
10

In repeated rounds of briefing and two oral arguments, neither the Banks in this case nor

11 those in the Wells Fargo case have cited a single decision that permits the exercise of federal court
12 jurisdiction over government conduct requiring legislative action that has not occurred.3 Rather,
13 the Banks’ approach throughout these two cases, including in their Opposition to Defendants’
14 Motion for Rule 11 Sanctions, has been to ignore the fundamental separation of powers issue
15 animating the Constitutional ripeness and standing doctrines applicable here and to cite cases, such
16 as MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), that do not involve the need for
17 legislative action before the threatened constitutional injury can occur. See Opposition at 10-11.
18
Memorandum in Support of Motion to Dismiss for Lack of Subject Matter Jurisdiction (Wells
Fargo, Doc. 54).

19
20
21
22
23
24
25
26
27

2

Federal courts have been consistent in enforcing this jurisdictional bar. See, e.g., McChord v.
Cincinnati, N.O. & Tex. P. Ry. Co., 183 U.S. 483, 496-97 (1902) (federal courts lack jurisdiction
before the legislative action has occurred; “[t]he fact that . . . the legislative action threatened may
be in disregard of constitutional constraints . . . does not affect the question” (citation, internal
quotation marks omitted)); Associated Gen. Contractors of Am. v. City of Columbus, 172 F.3d 411,
415 (6th Cir. 1999) (“The New Orleans Court made clear that the role of the court is to intervene, if
at all, only after a legislative enactment has been passed.”); FrontierVision Operating Partners,
L.P. v. Town of Naples, Maine, No. 01-16-P-DMC, 2001 WL 220192, at *7 (D. Me. Mar. 7, 2001)
(“Unless and until the defendant enacts an ordinance . . . this court may not consider an application
for injunctive relief . . . concerning such an ordinance.”).
3

See Plaintiffs’ Opposition to Motion to Dismiss (Doc. 34); Opposition to Motion for Rule 11
Sanctions (Doc. 59); Plaintiffs’ Notice of Motion and Motion for Preliminary Injunction (Wells
Fargo, Doc. 8); Plaintiffs’ Reply Memorandum in Further Support of Motion for Preliminary
Injunction (Wells Fargo, Doc. 45); Plaintiffs’ Memorandum in Opposition to Defendants’ Motion
to Dismiss (Wells Fargo, Doc. 46).

28
2
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 There was no other approach for the Banks to take in briefing except to divert attention from the
2 relevant legal issue because it was clear before this case was filed that the Court could not exercise
3 subject matter jurisdiction over the Banks’ claims under the governing law.
4

Similarly, the Banks have made no good faith argument for “extending, modifying, or

5 reversing existing law.” Fed. R. Civ. P. 11(b)(2). Because the Banks never engaged with the
6 separation of powers issue, they offered no non-frivolous explanation for why their claims should
7 be considered ripe for adjudication and why this Court should take it upon itself to expand “the role
8 assigned to the judiciary in a tripartite allocation of power to assure that the federal courts will not
9 intrude into areas committed to the other branches of government.” Flast v. Cohen, 392 U.S. 83,
10 95 (1968). Nor could such an argument reasonably be advanced. Uncertainty as to whether a
11 prospective legislative action would be consistent with the Constitution is not a cognizable injury
12 sufficient to confer standing and render a claim ripe; otherwise, every individual potentially
13 affected by as yet undefined legislation (i.e., everyone) would have standing, any claim to
14 hypothesized government action would be ripe, and these Article III justiciability requirements
15 would be rendered meaningless. See Nov. 6, 2013 Order (Doc. 53) at 6 (“[T]o intervene before the
16 Richmond City Council adopts an eminent domain program would stretch the role of the judiciary
17 beyond what is contemplated by Article III and what is reasonable to maintain judicial efficiency.
18 If the courts were expected to intervene in every legislative proposal that had potential
19 constitutional ramifications, their dockets would be filled with prospective litigation.”).
20

There is nothing about this case that makes these fundamental principles inapposite. In

21 their Opposition, the Banks argue that the law governing justiciability requirements in declaratory
22 relief actions is unsettled and that they were thus entitled to require Defendants and the Court to
23 expend resources addressing the issue. Opposition at 8. That is nonsense. The governing law is
24 clear that Article III case and controversy requirements apply with no less force when plaintiffs
25 seek declaratory relief – because the Declaratory Judgment Act cannot modify the Constitution.
26 See Reply in Support of Motion to Dismiss (Doc. 42) at 1-2; MedImmune, Inc. v. Genentech, Inc.,
27 549 U.S. 118, 126-27 (2007) (“[T]he phrase ‘case of actual controversy’ in the [Declaratory
28 Judgment] Act refers to the type of ‘Cases’ and ‘Controversies’ that are justiciable under Article
3
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 III.” (citing Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937)); Gator.com Corp. v. L.L.
2 Bean, Inc., 398 F.3d 1125, 1129 (9th Cir. 2005) (“The limitations that Article III imposes upon
3 federal court jurisdiction are not relaxed in the declaratory judgment context.”).
4

The Banks state that they “cited substantial authority in their opposition to Defendants’

5 motion to dismiss demonstrating that, in similar situations, courts have permitted declaratory relief
6 actions and found that such challenges, in the face of threatened litigation, were ripe.” Opposition
7 at 8 (emphasis added). To the contrary, not one of the cases that the Banks cited concerned
8 legislative action – the critical fact relied upon by Defendants in their briefing and by the Court in
9 its decision, see November 6, 2013 Order (Doc. 53) at 4-6 – so these decisions do not present
10 “similar situations.”
11

Further, contrary to the Banks’ contention, see Opposition at ii, 8, 10, there was no basis

12 whatsoever for the Banks’ argument that the City’s conduct constituted “threats” rendering the
13 Banks’ claims ripe. In this respect, the Banks primarily rely on the offer letters sent to the Banks
14 as evidence of “concrete steps” rendering their claims ripe. Id. at 2, 5, 8, 10. But the offer letters
15 and attached generic pamphlets are clear on their face that no decision had been made to exercise
16 eminent domain power and explain that in order to initiate an eminent domain action the City is
17 required to adopt a Resolution of Necessity, which may be done only after a noticed, public hearing
18 at which the recipient of the letter would have the opportunity to present objections. See Offer
19 Letter and Pamphlet (Doc. 61) at 8; see also Doc. 42 at 6-7. The Banks’ own pleadings admit that
20 a Resolution of Necessity is required by California law before an eminent domain action may be
21 commenced and, therefore, it would be legally impossible for a letter to dispense with that
22 legislative prerequisite. In fact, under California law at least 15-days’ advance notice to certain
23 property owners is required if a governing body intends to hold a hearing to even consider the
24 adoption of a proposed Resolution of Necessity. Cal. Code Civ. Proc. §1245.235.
25

Given the existence of a Supreme Court decision directly on-point and the lack of any

26 contrary authority, there has never been a non-frivolous argument that existing law permits
27 adjudication of the Banks claims. Further, given the fundamental nature of the separation of
28 powers concerns animating the well-settled standing and ripeness doctrines applicable in this case,
4
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 there is no non-frivolous argument for “extending, modifying, or reversing existing law” in a
2 manner that would have rendered the Banks’ claims justiciable. Fed. R. Civ. P. 11(b)(2). Simply
3 put, because legislative action is required for the exercise of eminent domain authority, there is no
4 good faith argument that a federal court has jurisdiction to consider whether the exercise of such
5 power would be constitutional when the legislative action has not occurred. This fact was apparent
6 when the Banks filed their Complaint.4
7
II.

8
9

There Is No Good Faith Basis for Distinguishing this Case from the Related
Wells Fargo Case

To the extent that the Banks may have missed the subject matter jurisdiction issue when

10 they filed their original complaint, the objective frivolousness of the Bank’s claims was made
11 apparent by the legal briefing and this Court’s decision in the related Wells Fargo case. The
12 Banks’ initial complaint in this case was filed on the same day as that in the Wells Fargo case,
13 made similar factual allegations, and raised similar claims. See Complaint (Doc. 1); Wells Fargo
14 Complaint (Wells Fargo, Doc. 1).5 Like the Banks here, the plaintiffs in the Wells Fargo case are
15 also trustees of trusts holding mortgage loans which the City offered to purchase, see Wells Fargo
16 Complaint (Wells Fargo, Doc. 1 at ¶¶16-18), meaning that the two groups of plaintiffs are
17 identically situated with respect to the property at issue and Defendants’ conduct. In its order
18 dismissing this case, the Court characterized the two cases as “nearly identical.” Nov. 6, 2013
19 Order (Doc. 53) at 1. Even if the Banks somehow missed the jurisdictional issue when they
20 originally filed, they could not have had a basis for believing that their claims were justiciable after
21 seeing the briefs in the Wells Fargo case and this Court’s determination that the claims in the Wells
22
___________________________________

23

4

The Banks argue that Defendants’ stipulation to the filing of the Second Amended Complaint is a
concession that the Banks’ claims were not frivolous and were raised for a proper purpose.
Opposition at 7-8. But the Second Amended Complaint did not add new legal claims or material
allegations against Defendants, only additional trustee Plaintiffs and technical edits, so there was
no legal basis for opposing the technical amendment. Compare Doc. 6, and Doc. 20-2.
Defendants had already informed the Banks that their lawsuit was unripe (and sanctionable) and
Defendants successfully moved for dismissal of the entire lawsuit.

5

The Banks’ subsequent amended complaints added plaintiffs and the Second Amended Complaint
(Doc. 20-2) made “other minor revisions.” August 26, 2013 Order (Doc. 18).

24
25
26
27
28

5
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 Fargo case were not ripe and that no amendment could cure the lack subject matter jurisdiction.
2 See September 16, 2013 Order at 2 n.3 (Wells Fargo, Doc. 78).
3

The Banks assert that their case is different from Wells Fargo because their ripeness

4 argument was based on conduct that had already occurred, whereas the plaintiffs in Wells Fargo
5 relied only on prospective conduct and the harm that would be caused by an anticipated eminent
6 domain lawsuit. Opposition at ii, 5, 10. In particular, the Banks argue that “the Wells Fargo
7 plaintiffs focused on events that had not yet occurred . . . and asserted that those events were a
8 foregone conclusion. The Trustees, on the other hand, asserted that their claims were ripe because
9 of actions already taken by the City Council, namely the decision to send the July 31, 2013 letters
10 threatening to initiate eminent domain proceedings if offers to purchase were not accepted and the
11 Council’s recent vote not to withdraw the letters.” Id. at 5; see also id. at 10 (arguing that letters
12 “placed them in reasonable apprehension of suit, which . . . was sufficient for ripeness purposes”).
13 In fact, the plaintiffs in the Wells Fargo case received the same offer letters that the Banks in this
14 case complain of, and they also argued that those letters made their claims justiciable. The
15 plaintiffs in the Wells Fargo case argued: “[T]he offer letters here are sufficient to show that
16 Defendants have already taken substantial steps towards satisfying the statutory prerequisite to
17 effectuate the unconstitutional seizures. . . . Accordingly, this case is ripe.” Wells Fargo, Doc. 46
18 at 4. See also Wells Fargo, Doc. 8 at 17 (“Backed with the threat of [eminent domain] power,
19 MRP has attempted to coerce the Trusts and many others like them around the country to sell
20 performing loans at fire sale prices. MRP’s attempt to make the Trusts ‘an offer they can’t refuse’
21 – because of the coercive consequences of refusal – violates the constitutional rights of the Trusts
22 and their beneficiaries under color of law . . . .”); Wells Fargo, Doc. 46 at 1 (lawsuit is ripe because
23 city “sen[t] letter to the owners offering to acquire loans under threat of eminent domain seizure”).
24 Thus, the Banks’ contention that their case presented a different ripeness issue than the Wells
25 Fargo case is just as objectively frivolous as their contention that the Court had jurisdiction to hear
26 their claims.
27

Equally frivolous is the Banks’ argument that the fact that they sought declaratory relief in

28 this case distinguishes it from the Wells Fargo case. Opposition at ii, 5, 8. The Wells Fargo
6
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 plaintiffs also sought declaratory relief, see Complaint (Wells Fargo, Doc. 1), and the Wells Fargo
2 plaintiffs pointed this out in opposition to Defendants’ motion to dismiss their lawsuit, see Wells
3 Fargo, Doc. 46, at 9. As stated above, moreover, the Declaratory Judgment Act does not amend
4 Article III of the Constitution.
5

III.

6

Plaintiffs Must Have Been Aware that the Court Lacked Jurisdiction When
they Refused to Withdraw their Complaint

Less than one week after the Banks filed this lawsuit, Defendants sent them a letter that 1)

7

8 explained that the Banks’ claims were not ripe because the City had not adopted a resolution of
9 necessity authorizing an eminent domain action, 2) explained that under California law the notice
10 requirement for the hearing at which such a resolution of necessity would be considered provided
11 the Banks with ample time to oppose such an action when and if it became necessary, and 3)
12 accordingly requested that the Banks withdraw their unripe lawsuit without prejudice. Doc. 55-5
6
13 (August 13, 2013 letter). The letter also stated, “If your clients require the City to expend any

14 resources responding to . . . an obviously unripe lawsuit, the City will seek whatever sanctions may
15 be available.” Id. Similarly, after this Court dismissed the Wells Fargo case for lack of subject
16 matter jurisdiction, Defendants sent the Banks an email on September 16, 2013, again asking them
17 to withdraw this lawsuit: “Now that the Wells Fargo case has been dismissed without leave to
18 amend for lack of Article III jurisdiction, on grounds that present no distinction from your case, we
19 ask that you agree to file a voluntary dismissal of your case by the close of business tomorrow. If
20 we cannot obtain that commitment, we will be forced to file what would seem to be a completely
21 unnecessary Rule 12(b)(1) motion to dismiss that will waste the resources of the parties and the
22 court.” Doc. 55-2. Nonetheless, the Banks refused to withdraw their complaint, requiring
23 Defendants to litigate a frivolous issue and the Court to spend additional time on the case.
This conduct is sanctionable. Rule 11 is intended “to deter baseless filings in district

24

25 court.” Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990). The Rule “requires the court
26
___________________________________

27

6

The August 13, 2013 letter was addressed to the plaintiffs in both this case and the Wells Fargo
case. Doc. 55-5.

28
7
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 to impose an ‘appropriate sanction’ on a litigant who wastes judicial resources by filing a pleading
2 that is not well grounded in fact and warranted by existing law or a good-faith argument for its
3 extension, modification, or reversal.” Id. at 409 (Stevens, J., concurring in part and dissenting in
4 part).
5

The Banks argue that the Court must assess whether their complaint was frivolous as of the

6 time when it was filed. Opposition at 7. As explained above, it was frivolous at that time. See
7 supra, Section I. Further, this Court has recognized that refusal to withdraw a pleading after it
8 becomes obvious that the pleading is baseless may be grounds for Rule 11 sanctions. See Welbon
9 v. Burnett, Nos. C 07-4248 CRB, C 07-2992 CRB, C 08-123 CRB, 2008 WL 789896, at *4 (N.D.
10 Cal. Mar. 24, 2008) (Breyer, J.) (imposing sanctions when plaintiff “proceeded with the
11 prosecution of [his] lawsuit . . . [after] it was objectively apparent that the complaint would fail
12 since his two other nearly identical complaints had failed”); see also Johnson v. Univ. of Rochester
13 Med. Ctr., 715 F. Supp. 2d 427, 430-31 (W.D.N.Y. 2010) (finding monetary sanctions appropriate
14 based in part on “counsel’s inexplicable refusal to withdraw the frivolous claims for nearly a year,
15 even after their baselessness had been precisely identified and briefed by defendants”). The Banks
16 argue that Welbon is inapposite because the plaintiff there had filed multiple complaints, whereas
17 this case involves complaints by distinct groups of plaintiffs. Opposition at 11. While the two
18 cases at issue here are initiated by nominally different groups of plaintiffs, the two groups are
19 identically situated vis-à-vis the Defendants, they challenge the same conduct by the Defendants,
20 raise five nearly identical federal claims, and were filed on the same day, suggesting that the two
21 lawsuits are not unrelated. Regardless, in Welbon the point was that it was “objectively apparent”
22 that the plaintiff’s complaint would fail because two “nearly identical” complaints had failed. 2008
23 WL 789896 at *4. Because the Banks in this case were plainly aware of the Wells Fargo case, they
24 had the same information as the plaintiff in Welbon and it was “objectively apparent” that their
25 complaint would fail, whether the related suit was brought by the same group of banks or another
26 group identically situated.
27

The Banks also argue that because sanctions were not awarded in Wells Fargo Nat’l Bank

28 Ass’n v. Vann, No. C 12-05725 CRB, 2013 WL 791474 (N.D. Cal. Mar. 4, 2013) (Breyer, J.),
8
Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 sanctions should not be awarded in this case. Opposition at 11. But in Vann the Court explained
2 that the opposing party did not seek sanctions. 2013 WL 791474 at *4. Nonetheless, as
3 Defendants noted in their Motion, the Court cautioned the offending party that the Court could
4 commence Rule 11 proceedings on its own initiative. See Motion for Rule 11 Sanctions (Doc. 55)
5 (“Motion”) at 5 (citing Vann, 2013 WL 791474 at *4). As noted above, Defendants in this case
6 explained to the Banks that the lawsuit was not ripe less than a week after it was filed, repeatedly
7 requested that the Banks withdraw their unripe lawsuit, and gave the Banks 21-days’ notice to
8 comply with the Rule 11 safe-harbor. Imposition of sanctions here is entirely consistent with
9 Vann.
10

The Banks also note that in both Welbon and Vann the parties that were sanctioned or

11 cautioned that their conduct may lead to sanctions were proceeding pro se, whereas the Banks are
12 represented by respected law firms. See Opposition at 8-9, 11. But respected law firms should not
13 be held to a lower standard than pro se parties when it comes to responsibility for advancing
14 frivolous arguments for improper purposes. To the contrary, because they are sophisticated parties
15 represented by respected law firms, the Banks have no basis to claim ignorance of or inability to
16 understand the relevant legal principles.
17

Contrary to the Banks’ assertion, see Opposition at 10, Long v. Marubeni Am. Corp., 406 F.

18 Supp. 2d 285, 303 (S.D.N.Y. 2005), does not support their argument against sanctions. In that
19 case, the court considered whether the plaintiffs had stated a claim for race discrimination under 42
20 U.S.C. §1981 based on allegations that appeared to more clearly allege national origin
21 discrimination. The court noted that it faced the same issue in a prior case and held that such
22 allegations did support a §1981 claim, 406 F. Supp. 2d at 289, but declined to sanction the
23 defendants for moving to dismiss the claim, id. at 303. Importantly, in Long the court explained
24 that its decision was based on Supreme Court authority acknowledging that “the line between
25 discrimination based on ancestry or ethnic characteristics, and discrimination based on place or
26 nation of origin, is not a bright one.” Id. (quoting Saint Francis College v. Al-Khazraji, 481 U.S.
27 604, 614 (1987) (Brennan, J., concurring)) (internal quotation marks omitted). Given this lack of
28 clarity, the court concluded that “[d]efendants were entitled to argue that plaintiffs’ complaint
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Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 alleges facts that fall on the latter side of the line.” Id. By contrast, as explained above, the
2 controlling authority cited by Defendants in this case admits no such uncertainty with respect to the
3 critical issues in this case: 1) federal courts lack jurisdiction to consider challenges to government
4 conduct requiring legislative action that has not occurred, and 2) the jurisdictional requirements of
5 Article III are not relaxed in the declaratory judgment context. See supra, Sec. I.
6

Similarly, in Federal Savings & Loan Ins. Corp. v. Molinaro, 923 F.2d 736, 739 (9th Cir.

7 1991), another case the Banks rely upon, the Ninth Circuit’s decision to reverse the sanctions order
8 was based not only on the fact that the relevant previous order had not adjudicated defendant’s
9 claim to the property at issue, but also on the plausibility of the legal arguments made by the
10 defendant. Id. at 739. For the reasons explained above, the Banks advanced no plausible argument
11 for weakening the Article III justiciability requirements in this case.
12

The Banks’ argument on this point is premised on a misapprehension of Defendants’

13 position. See Opposition at 10. Defendants do not argue that this Court’s decision in the Wells
14 Fargo case was controlling with respect to Defendants’ motion to dismiss the Banks’ complaint in
15 this case. Rather, the point is that New Orleans and the other Supreme Court and Ninth Circuit
16 authorities cited by Defendants are controlling, and that, even if this entire line of well-settled,
17 controlling precedent about Article III jurisdiction somehow escaped the Banks’ notice when they
18 filed suit (and it could not have) the controlling precedents would have become apparent to the
19 Banks after the Court dismissed the related Wells Fargo case without leave to amend.
20

Finally, the Banks’ argument, see Opposition at 9, that Defendants’ Rule 11 motion “chills”

21 their First Amendment right to petition the government is a red herring. The existence and
22 structure of Rule 11 make it apparent that the First Amendment right the Banks identify does not
23 extend to protect the filing of legally or factually baseless pleadings in federal court or to making
24 filings for an impermissible purpose. The Supreme Court has explained, “Although the Rule must
25 be read in light of concerns that it will spawn satellite litigation and chill vigorous advocacy, . . .
26 any interpretation must give effect to the Rule’s central goal of deterrence.” Cooter & Gell, 496
27 U.S. at 393; see also DeBauche v. Trani, 191 F.3d 499, 511 (4th Cir. 1999) (“[W]hen a court
28 imposes fees on a plaintiff who has pressed a ‘frivolous’ claim, it chills nothing that is worth
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Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 encouraging.”); In re Itel Sec. Litig., 791 F.2d 672, 676 (9th Cir. 1986) (dismissing as “frivolous”
2 the contention that the First Amendment protects the right to make any argument, no matter how
3 baseless). Should the City adopt a resolution of necessity, providing factual content to the issues
4 raised by the Banks’ Second Amended Complaint and rendering them ripe for review, the Banks
5 will have “every right to challenge” the City’s actions by petitioning this Court. Opposition at 9.
6 The Banks do not, however, have every right to force Defendants and the Court to expend time and
7 resources responding to plainly non-justiciable claims.
8

IV.

9

As a remedy for the Banks’ Rule 11 violation, Defendants seek attorneys’ fees and costs

The Sanction Sought

10 incurred in reviewing the Second Amended Complaint, litigating their motion to dismiss the
11 Banks’ unripe lawsuit, and fees and costs incurred in presenting this motion. See Fed. R. Civ. P.
12 11(c)(1)(A), (c)(2).7 “The most useful starting point for determining the amount of a reasonable
13 fee is the number of hours reasonable expended on the litigation multiplied by a reasonable hourly
14 rate.” Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). There is a strong presumption that this
15 “lodestar” amount is the reasonable fee. See Burlington v. Dague, 505 U.S. 557, 562 (1992).
16

The following chart sets forth the lodestar calculation for the work performed as a result of

17 the Banks’ Rule 11 violation:
18
19

Timekeeper

Hours

Hourly Rate

Lodestar

20 Stephen Berzon

17.2

$875

$15,050

21 Michael Rubin

2.9

$875

$2,538

22 Scott Kronland

41.05

$780

$32,019

23 Jonathan Weissglass

2.25

$725

$1,631

24 ___________________________________
7
Defendants do not seek dismissal of the Banks’ lawsuit with prejudice. As Defendants explained
in their motion, the Rule 11 motion was drafted and served on the Banks more than 21 days
25
before it was filed in compliance with the “safe harbor” requirement of Rule 11(c)(2). See
Motion at 1 n.1. Thus, the motion was drafted prior to the Court’s dismissal of the Banks’
26
lawsuit, and the request for dismissal with prejudice reflects that fact. The only change made to
the motion prior to filing was the modification of the relevant dates. Defendants understand that
27
any other changes to the motion would have been inconsistent with the “safe harbor” requirement.
28
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Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 Stacey Leyton

35.8

$665

$23,807

2 Peder J. Thoreen

0.7

$575

$403

3 Eric Brown

73.2

$400

$29,280

4 Paralegals

4.2

$225

$945

5

With one exception, all hours for which compensation is requested are supported by

6 detailed, contemporaneous time records, maintained in the normal course of business. Declaration
7 of Stacey Leyton (“Leyton Decl.”) ¶11 and Exh. B. Time has also been included based on
8 Defendants’ estimate that one attorney will spend three hours preparing for the hearing on this
9 motion, and two attorneys will attend the hearing. Id. ¶13. Counsel allocated tasks in a manner
10 that permitted the litigation to be conducted efficiently and eliminated time that was arguably
11 spent, in whole or in part, on matters not directly bearing on the Banks’ sanctionable conduct. Id.
12 ¶12.
13

The reasonable hourly rate is derived from the community where the district court is

14 located. Prison Legal News v. Schwarzenegger, 608 F.3d 446, 454 (9th Cir. 2010). “The rates
15 prevailing in that district for similar services by lawyers of reasonably comparable skill,
16 experience, and reputation thus furnish the proper measure of the reasonableness of the rates.” Id.
17 at 455 (internal quotation marks omitted). Further, the comparison is not limited to attorneys who
18 practice in the same area of law, “but rather extends to all attorneys in the relevant community
19 engaged in equally complex Federal litigation, no matter the subject matter.” Id. (internal
20 quotation marks omitted). The rates at which compensation is sought for Defendants’ counsel are
21 amply supported by evidence in the record, including the declarations of attorneys not involved in
22 this case which are attached as exhibits to the Leyton Declaration. Leyton Decl. Exhs. D, E, F.
23 Further, Defendants have submitted evidence that their counsel are compensated at these rates by
24 fee-paying clients and have been awarded those rates in other cases. Id. ¶¶16, 17.
25
26

CONCLUSION
For the reasons stated herein and in Defendants’ Motion for Rule 11 Sanctions, Defendants

27 seek an award of $105,672 in fees and $1,117 in costs as compensation for time spent
28 unnecessarily litigating the Banks’ unripe lawsuit and time spent litigating this motion.
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Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB

1 Dated: December 20, 2013
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Respectfully submitted,
/s/ Stacey M. Leyton____
Stacey M. Leyton
Stephen P. Berzon
Scott A. Kronland
Stacey M. Leyton
Eric P. Brown
Altshuler Berzon LLP
Attorneys for Defendants
City of Richmond, Richmond City Council,
Mortgage Resolution Partners LLC, and Gordian
Sword LLC
Bruce Reed Goodmiller
Carlos A. Privat
City of Richmond

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Attorneys for Defendant City of Richmond and
Richmond City Council
William A. Falik

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Attorney for Defendant
Mortgage Resolution Partners LLC and Gordian
Sword LLC

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Reply in Support of Motion For Rule 11 Sanctions
Case No. CV-13-3664-CRB