H.P.D. Consolidation, Inc. v. Pina et al

Filing 163

ORDER by Judge Edward M. Chen Granting in Part and Denying in Part 152 Defendants' Motion for Attorneys' Fees. (emcsec, COURT STAFF) (Filed on 3/20/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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Plaintiff,

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ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTION FOR ATTORNEYS’ FEES

v.

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JOSE PINA, et al.,

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Docket No. 152

Defendants.

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For the Northern District of California

United States District Court

Case No. 15-cv-05309-EMC

H.P.D. CONSOLIDATION, INC.,

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I.

INTRODUCTION

Plaintiff H.P.D. Consolidation Inc., a provider of wine storage and logistics, brought the

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present action. Defendants are Jose Pina, aka Jose Piedra (“Pina”); Edwin Whitefield

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(“Whitefield”); David Borges (“Borges”); Michael Shemali (“Shemali”); Wines of the World,

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LLC, dba Hooked on Wine (“WOW”); Tri Cities Liquor & Spirits, LLC, dba Mid Columbia Wine

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& Spirits (“Tri Cities”); Hi-Time Wine Cellars (“Hi-Time”); Matt Myers, individually and dba

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Matt Myers Wine (“Myers”); Sandra Rodriguez and Eduardo Rodriguez (“the Rodriguezes”);

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Sandi‟s Pet Place; and Belmont Wine Exchange, LLC (“Belmont Wine”) (together, Shemali,

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WOW, Tri Cities, Hi-Time, Myers, the Rodriguezes, Sandi‟s Pet Place, and Belmont Wine are

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“Receiving Defendants”). Plaintiff alleges that Defendants engaged in a wine theft ring in

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violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 2315

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(interstate transportation of stolen property), and 18 U.S.C. § 1341 (mail fraud).

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Pending before the Court is Receiving Defendants‟ motion for attorneys‟ fees under

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28 U.S.C. § 1927 and the Court‟s inherent power. Receiving Defendants allege that Plaintiff and

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Plaintiff‟s Counsel unreasonably and vexatiously multiplied the proceedings in this action; and

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that they initiated and pursued this action in bad faith. This Court grants Receiving Defendants‟

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motion for attorneys‟ fees in the amount of $23,737.40 under 28 U.S.C. § 1927 but denies request

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for sanctions under the Court‟s inherent power.
II.

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A.

BACKGROUND

Factual Background

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Plaintiff HPD Consolidation provides wine storage and logistics to the wine industry.

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Docket No. 135 (“Second Amended Complaint” or “SAC”) ¶ 19. According to the SAC, the

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Receiving Defendants were involved in an enterprise to steal from Plaintiff‟s facility and then sell

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the wines through various outlets. Plaintiff discovered that the wine was stolen when an employee

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of a wine broker approached Plaintiff stating that she had seen Plaintiff‟s wine for sale on Hi-

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In particular, Plaintiff alleges that Defendants formed, operated, and maintained a criminal

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For the Northern District of California

United States District Court

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Time‟s website. Id. ¶ 20. Subsequently, Plaintiff investigated the wine theft. Id.

enterprise to steal wine from storage facilities in Napa County, California, including Plaintiff‟s

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facility. Id. ¶ 22(a). Specifically, Plaintiff alleges that Defendant Pina took the wine from the

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facility on at least five occasions. Id. ¶ 22(b), (f). Pina, a night shift supervisor at Plaintiff‟s

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facility, removed the wine from Plaintiff‟s facility from 2013 to the early part of 2014. Id. ¶ 22(b).

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Defendant Whitefield assisted and facilitated Defendant Pina in the theft by using Whitefield‟s

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truck to transport stolen wine to Whitefield‟s shop. Id. Subsequently, Defendants Pina and

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Whitefield transported the wine to Defendant Borges, a Senior Vice President in information

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technology at Bank of America. Id. ¶ 22(b), (d). Defendant Borges sold the transported wine to

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Defendant Shemali, a wine broker, and his entities (WOW and Tri-Cities), who in turn sold a

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portion of the wine to Defendants Belmont Wine and Myers. Id. ¶ 22(g). Myers stored the

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purchased wine at Sandi‟s Pet Place. Id. ¶ 22(r). Myers also transported the wine at Sandi‟s Pet

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Place to a storage locker at Hi-Time, an online wine seller, or back to his home in Arizona. See id.

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¶ 22(p).

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The following image depicts the sequence of events described above:

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Belmont Wine

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Pina

Whitefield

Shemali

Borges

Myers

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Sandi's Pet
Place/the
Rodriguezes
Hi-Time

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After the theft of wine was discovered and presumably reported to law enforcement,

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Detective Brad Chambers of the Napa County Sherriff‟s office called Defendant Shemali on

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March 17, 2014, and notified him that the wine he purchased from Borges was stolen. Docket No.

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152-24 Shemali Declaration ¶ 5; Docket No. 152-21 Khouri Declaration ¶ 5; Docket No. 152-23

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Myers Declaration ¶ 7. Defendant Shemali then called Defendant John Khouri of Belmont Wine

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and Defendant Myers to notify them of the stolen wine. Id. Defendants Myers and Belmont Wine

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agreed to return the wine remaining in their possession, and, in exchange, Shemali agreed to

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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

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an email to Defendant Shemali memorializing the conversation between Stravinski and Defendant

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For the Northern District of California

Defendant Shemali spoke by telephone regarding the stolen wine. After the call, Stravinski sent

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United States District Court

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Shemali. See Shemali Declaration Ex. A; Docket No. 157 Stravinski Declaration ¶ 10. The email

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provides that Shemali would

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(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.

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Stravinski Declaration ¶ 10. The email further notes that the goal of returning the wine and

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notifying Defendants Myers and Belmont Wine of the stolen wine is to “quickly and completely

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demonstrate that none of us knowingly traffics in stolen property.” Shemali Declaration Ex. A ¶

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(f).

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On April 4, 2014, Defendant Shemali and Stravinski, accompanied by counsel for HPD,

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Carl Motschiedler, met in Washington to discuss the disposition of the wine. See Shemali

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Declaration ¶ 7; Stravinski Declaration ¶ 18; Docket No. 156 Motschiedler Declaration ¶ 3. At the

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meeting, Shemali provided Plaintiff with spreadsheets detailing his transactions with Borges.

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SAC ¶ 22(i); id. Exs. B, C.

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Subsequently, Plaintiff spoke with Myers regarding Myers‟ role in the wine theft. See
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SAC ¶ 22(p). Myers stated “Plaintiff would have a difficult time „proving‟ that the stolen wine

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was ever in Myers‟ possession because he made sure the shipping labels were not in his name.”

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Id.

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B.

Procedural History
Plaintiff filed this lawsuit on November 19, 2015. See Docket No. 1 (“Original

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Complaint”). Receiving Defendants moved to dismiss Plaintiff‟s Original Complaint on February

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25, 2016. See Docket No. 89 (“Motion to Dismiss the Original Complaint”). Rather than

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opposing this motion, Plaintiff filed an amended complaint. See Docket No. 96 (“First Amended

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Complaint” or “FAC”). Receiving Defendants moved to dismiss the FAC on April 4, 2016. See

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Docket No. 102.
In response to Plaintiff‟s opposition, counsel for Receiving Defendants sent a letter to

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For the Northern District of California

United States District Court

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Plaintiff‟s Counsel. See Docket No. 152-5 Foote Declaration Ex. 4. The letter warned that,

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pursuant to Fed. R. Civ. P. 11(c)(2), sanctions would be filed against Plaintiff‟s Counsel because

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the FAC and the opposition to the motion to dismiss were without any evidentiary support. See id.

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The motion proceeded to hearing.
This Court dismissed the FAC but granted Plaintiff leave to amend. See Docket No. 134

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(September 22, 2016 Civil Minutes). This Court required Plaintiff to provide in any further

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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.

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Id.

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Plaintiff filed the Second Amended Complaint on October 14, 2016. See SAC. Receiving

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Defendants moved to dismiss the SAC and served a Rule 11 motion seeking monetary sanctions in

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the form of attorneys‟ fees. See Foote Declaration ¶ 7. Pursuant to Rule 11 Safe Harbor

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Provision, Fed. R. Civ. P. 11(c)(2), Receiving Defendants demanded that Plaintiff withdraw the

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SAC within twenty-one days and dismiss all Receiving Defendants from the action. See Foote
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Declaration, Ex. 5.
On November 28, 2016, Plaintiff‟s Counsel filed a request to voluntarily dismiss the action

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against all Receiving Defendants without prejudice. See Docket No. 150. On November 29,

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2016, this Court issued an order dismissing the case. See Docket No. 151.

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Before this Court is Receiving Defendants‟ motion to recover attorneys‟ fees pursuant to

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28 U.S.C. § 1927 and the Court‟s inherent power. See Docket No. 152 (“Motion for Attorneys‟

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Fees). Receiving Defendants contend sanctions are appropriate because Plaintiff‟s Counsel

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unreasonably and vexatiously multiplied the proceedings in this action and initiated and pursued

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this action in bad faith. Id.
III.

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A.

Sanctions Under 28 U.S.C. § 1927

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For the Northern District of California

United States District Court

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DISCUSSION

1.

Legal Standard

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Section 1927 provides for attorneys‟ fees when an attorney multiplies proceedings

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unreasonably and vexatiously. See 28 U.S.C.A. § 1927 (West). Section 1927 sanctions do not

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apply to initial proceedings, but instead apply to subsequent procedures because such sanctions are

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designed to deter unnecessary multiplication of proceedings and tactics. See In re Keegan Mgmt.

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Co., Sec. Litig., 78 F.3d 431, 435 (9th Cir. 1996).

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Sanctions may be awarded under Section 1927 when attorney behaves recklessly and

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frivolously. See Fink v. Gomez, 239 F.3d 989, 993 (9th Cir. 2001); see also B.K.B. v. Maui Police

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Dept., 276 F.3d 1091, 1108 (9th Cir. 2002) (holding that recklessness plus knowledge or asserting

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a frivolous argument which multiplies judicial proceedings sufficiently supports an award of

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sanctions under Section 1927). Recklessness means “a departure from ordinary standards of care

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that disregards a known or obvious risk of material misrepresentation.” See In re Girardi, 611

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F.3d 1027, 1038 n.4 (9th Cir. 2010). Frivolousness “should be understood as referring to legal or

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factual contentions so weak as to constitute objective evidence of improper purpose.” Id. at 1062.

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A frivolous filing is one “that is both baseless and without reasonable competent inquiry.” Id.

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(quoting Holgate v. Baldwin, 425 F.3d 671, 677 (9th Cir. 2005)).

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Plaintiff acted recklessly and frivolously in filing the SAC. In the Court‟s order dismissing
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FAC (“the Court‟s Order”), the Court had required Plaintiff to properly amend its complaint to

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assert (1) greater specificity regarding each Defendant‟s knowledge of and participation in the

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alleged enterprise; (2) allegations as to the enterprise separate from the alleged racketeering; (3)

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facts supporting the alleged mail fraud; and (4) facts showing the relevant Defendant had interest

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in, control over, and/or conducted the alleged enterprise. See September 22, 2016 Civil Minutes.

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However, in filing the SAC, Plaintiff failed to comply with all of the Court‟s directions; much of

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the SAC continues to lack the requisite specificity.
2.

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Greater Specificity to Each Defendant‟s Knowledge
a.

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Shemali

In the FAC, Plaintiff conclusorily alleged Shemali‟s knowledge, asserting that Borges

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“determined the types and amounts of wine to steal” by “working with . . . Shemali”, FAC ¶ 21(d),

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United States District Court

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and that Borges organized and controlled the theft and “then communicated [to] Shemali . . . what

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wine had been stolen and was available,” id ¶ 21(g). See September 22, 2016 Civil Minutes.
In the SAC, Plaintiff added more specific allegations to support the assertion that Shemali

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must have known that the wine he obtained was stolen. Specifically, the SAC provides that “no

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person or entity engaged in the commercial or retail sale or distribution of wine (as was Shemali)

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could have reasonably believed that someone like Whitefield would have had access to the quality

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wines that were stolen.” SAC ¶ 22(c). The SAC also alleges that the wines sold by Shemali to

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Belmont Wine and Tri-Cities were “not available anywhere in the United States in the quantities,

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vintage and price being offered by Borges [who is an unlicensed wine broker] and it should have

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be[en] obvious to them that Borges and his associates were trafficking in stolen wine.” Id. ¶

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22(k).

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The specific allegations in the SAC support the assertion that Shemali knew the wine was

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stolen. Thus, Plaintiff satisfied this Court‟s Order requiring specificity as to Shemali‟s

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knowledge.

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b.

Myers

In the SAC, Plaintiff provides further support for the allegation that Myers knew the wine
was stolen. Unlike the FAC, Plaintiff did not merely argue that Myers “knowingly received stolen
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wine” in a conclusory fashion. SAC ¶ 22(q). Plaintiff additionally alleged that the stolen wine

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was “not available anywhere other than Plaintiff‟s warehouse.” Id. ¶ 22(k). This allegation

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indicates that Myers, a wine broker, would have known that he purchased stolen wine because it

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could not have been purchased elsewhere other than from Plaintiff‟s warehouse. Furthermore, the

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SAC alleges that Myers stated during a conversation with HPD owner, Stravinski, “that Plaintiff

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would have a difficult time „proving‟ that the stolen wine was ever in Myers‟ possession because

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he made sure the shipping labels were not in his name.” SAC ¶ 22(p). This statement can be read

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as an implicit admission by Myers that he knowingly purchased stolen wine.

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For the Northern District of California

United States District Court

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Thus, the additional allegations in the SAC demonstrate culpable scienter. Plaintiff
complied with the Court‟s Order requiring specificity as to Myers‟s knowledge.
c.

Belmont Wine

The SAC, however, fails to allege with specificity that Belmont Wine knew the wine was

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stolen. Plaintiff merely alleges that it “should have been obvious” to Belmont Wine that Borges

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trafficked in stolen wine. SAC ¶ 22(m). However, Plaintiff failed to allege that Belmont Wine

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purchased wine directly from Borges; instead, the SAC alleges that “Shemali immediately sold a

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large portion of this stolen wine to Belmont Wine.” Id. But since Shemali is a professional wine

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broker, Belmont Wine had no obvious reason to suspect that the wine was stolen absent some

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other indication.

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The SAC thus fails to allege with sufficient specificity Belmont Wine‟s knowledge that the
wine it purchased was stolen. Plaintiff thus failed to comply with this Court‟s Order.
d.

Sandi‟s Pet Place and the Rodriguezes

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The SAC alleges that Sandi‟s Pet Place and the Rodriguezes “knowingly received stolen

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wine” because sixteen shipping labels show that wine was shipped from Shemali to Sandi‟s Pet

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Place. SAC ¶ 22(r). Moreover, Sandi‟s Pet Place “held [the wine] for Myers, delivered it to

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Myers and /or to common carriers at the direction and authorization of Myers, and were thereafter

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compensated by Myers on numerous occasions.” Id. Furthermore, according to the SAC, “it is

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obvious that Sandi‟s Pet Place and the Rodriguezes were acting as Myer‟s „fence.‟” Id. ¶ 22(p).

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However, there are no allegations that the Rodriguezes knew anything about wine
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distribution or the particular wines involved in these transactions. As such, the Rodriguezes had

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no reason to suspect the wines were stolen. Nor is there any allegation that the Rodriguezes

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directly communicated with Shemali or Borges about the sale. The shipping labels showing

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Sandi‟s Pet Place as the destination provide no real probative value in establishing that the

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Rodriguezes knew the wine shipped was stolen. The fact that Sandi‟s Pet Place received

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compensation from Myers for receiving and storing is in itself not incriminating absent the

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Rodriguezes‟ knowledge the wine was stolen; compensation could have simply been for providing

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storage for Myers; it does not indicate such storage was done for a nefarious purpose.
Thus, the SAC still fails to allege with specificity facts that Sandi‟s Pet Place and the

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Rodriguezes knowingly acted as a fence for Myers. Plaintiff thus failed to comply with this

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Court‟s Order.
e.

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United States District Court

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Hi-Time

As mentioned earlier, Plaintiff first discovered that the wine was stolen when another wine

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broker‟s employee discovered Plaintiff‟s wine on Hi-Time‟s website. The SAC alleges that “Hi-

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Time, also an experienced wine merchant, knew or should have known, that Shemali, WOW, Tri-

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Cities, and Borges could not have access to quality wines,” SAC ¶ 22(l), and attaches a copy of

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shipping labels, one of which shows “one shipment to Hi-Time.” Stravinski Declaration Ex. G.

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However, the SAC fails to demonstrate Hi-Time‟s knowledge regarding the stolen wine.

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There is no allegation that Hi-Time spoke to Shemali or Borges and was told the wine was stolen.

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Since Hi-Time received the wine from a professional reseller, Myers, Hi-Time had no reason to

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believe the wine was stolen absent any other indication.

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By failing to provide greater specificity as to Hi-Time‟s knowledge of stolen wine,
Plaintiff failed to comply with this Court‟s Order in filing the SAC.
3.

Allegations as to the Enterprise Separate From the Alleged Racketeering
a.

All Receiving Defendants

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The existence of an enterprise requires “(A) a common purpose, (B) a structure or

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organization, and (C) longevity necessary to accomplish the purpose.” Eclectic Props. E., LLC v.

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Marcus & Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014). The organization may be “formal or
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informal,” but Plaintiff must show “that the various associates function as a continuing unit.”

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United States v. Turkette, 452 U.S. 576, 583 (1981). Moreover, “[s]ome knowledge of the

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enterprise is necessary as part of the requirement of showing association with the enterprise.”

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United States v. Brandao, 539 F.3d 44, 51 (1st Cir. 2008).

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In the SAC, Plaintiff specifically demonstrated a common purpose among Receiving

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Defendants by alleging that Receiving Defendants engaged in an agreement “which came to pass

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and which each defendant was involved . . . to steal wine from Plaintiff‟s wine storage facility,

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then s[ell], res[ell], distribut[e] and/or deliver[], offer the sale of the stolen wine.” SAC ¶ 26.

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Plaintiff also showed a structure or organization by alleging that each Defendant played some role

“Borges immediately sold the wine to Shemali and his entities, WOW and Tri Cities, who then

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in the wine theft ring: Pina, Whitefield, and Borges stole the wine from Plaintiff‟s facilities;

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United States District Court

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immediately re-sold significant amounts of the stolen wine to Belmont Wine Exchange and

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Myers”; subsequently, the wine was shipped to Sandi‟s Pet Place, the Rodriguezes, and Hi-Time.

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Id. ¶ 22. Additionally, Plaintiff alleged the longevity of the enterprise by providing that the

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alleged wine theft “beg[an] in early 2013 and continu[ed] through at least 2015,” SAC ¶ 22(a); and

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that the enterprise was “a well-oiled machine and had been ongoing for over a year-plus prior to

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Plaintiff‟s discovery of its existence.” Id. ¶ 22(o).

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Thus, Plaintiff plausibly alleges in the SAC that an enterprise existed among some of

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Receiving Defendants. However, enterprise allegations fail as to Belmont Wine, Sandi‟s Pet

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Place, and Hi-Time because, as discussed in Part 2(c)-(e), Plaintiff failed to sufficiently state that

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they had knowledge of the enterprise.

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4.

Facts Supporting the Alleged Mail Fraud
a.

All Receiving Defendants

HPD has brought three RICO claims based on 18 U.S.C. § 1962(b), (c), and (d). To

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succeed on these claims, a party must provide that the relevant defendants engaged in a pattern of

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racketeering activity. Id. A “„racketeering activity‟ means . . . any act which is indictable under

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any of the following provisions of title 18, United States Code . . . section 1341 (relating to mail

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fraud), . . . sections 2314 and 2315 (relating to interstate transportation of stolen property).” 18
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U.S.C. § 1961(1). A “„pattern of racketeering activity‟ requires at least two acts of racketeering

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activity.” Id. § 1961(5).

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The SAC alleges that Receiving Defendants‟ racketeering activity includes (1) mail fraud,

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see 18 U.S.C. § 1341, and (2) interstate transportation of stolen goods, see id. §§ 2314-2315.

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After the motion to dismiss the FAC, this Court directed Plaintiff to amend any future pleadings to

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sufficiently allege mail fraud. See September 22, 2016 Civil Minutes.

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Mail fraud applies to “any scheme or artifice to defraud,” or where someone “obtain[s]

“any counterfeit coin, obligation, security, or other article.” 18 U.S.C. § 1341. This requires: “(1)

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proof of a scheme to defraud, (2) using the mails or wires to further the fraudulent scheme, and (3)

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specific intent to defraud.” United States v. French, 748 F.3d 922, 935 (9th Cir. 2014); see, e.g.,

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For the Northern District of California

money or property by means of false or fraudulent pretenses,” or “dispose[s] of” or “furnish[es]”

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United States District Court

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United States v. Rogers, 321 F.3d 1226, 1229 (9th Cir. 2003) (affirming a mail fraud conviction

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where the defendant orchestrated a large scale Ponzi scheme that sent fraudulent cashier‟s checks

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through the mail).

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Moreover, Plaintiff‟s claims predicated on mail fraud must comport with Rule 9(b). See

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Schreiber Distrib. Co. v. Serv-Well-Furniture Co., 806 F.2d 1393, 1400 (9th Cir. 1986) (applying

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Rule 9(b) to “fraudulent acts that form the alleged pattern of racketeering activity”). Plaintiff,

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therefore, “must state with particularity the circumstances constituting fraud or mistake.” Fed. R.

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Civ. P. 9(b).

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In the FAC, Plaintiff recited that Receiving Defendants committed mail fraud but did not

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state how. See FAC ¶¶ 3-4, 21(a), (m), 47, 53(m). The only relevant references are that

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Defendants “ship[ped] the stolen wine,” id. ¶¶ 21(a), (l), (n), 53(a), (l), (n), and Myers “packaged

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and mailed bottles of stolen wine,” id. ¶¶ 21(m), 53(m). This recitation in the FAC did not amount

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to mail fraud, much less state facts with particularity. Unlike in Rogers, the FAC does not allege

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that there was a false representation made by the shipper (Receiving Defendants) through the mail

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or that counterfeit goods were sent through the mail. See Rogers, 321 F.3d at 1229; see also

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United States v. Kaplan, 554 F.2d 958, 965 (9th Cir. 1977) (holding that mail fraud requires a

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scheme to defraud and use of the mail in furtherance of that scheme).
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In the SAC, Plaintiff added that Defendants engaged in “the sale of stolen wine online and

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shipments and distributions through the mail.” SAC ¶ 22(a). However, this allegation does not

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demonstrate that Receiving Defendants engaged in mail fraud. It adds nothing materially new to

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the FAC.

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Plaintiff‟s mail fraud allegations continue to fail to state a claim, and Plaintiff‟s failure to
amend the SAC to plead mail fraud with particularity violated this Court‟s Order.
5.

Facts Showing the Relevant Defendants Had Interest in, Control Over, and/or
Conducted the Alleged Enterprise

The September 22, 2016 Minute Order states that “where Plaintiff wishes to state a claim

had interest in, control over, and/or conducted the alleged enterprise.” September 22, 2016 Civil

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under 18 U.S.C. § 1962(b) and (c),” Plaintiff must provide “facts showing the relevant Defendant

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United States District Court

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Minutes. Even though the Minute Order refers to both Sections 1962(b) and (c), the phrase

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“interest in or control in” comes from Section 1962(b). This section provides that the defendant

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must “acquire or maintain, directly or indirectly, any interest in or control of any enterprise” to be

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held labile. 18 U.S.C.A. § 1962 (West). To state an interest under Section 1962(b), “a plaintiff

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must allege that “1) the defendant‟s activity led to its control or acquisition over a RICO

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enterprise, and 2) an injury to plaintiff resulting from defendant‟s control or acquisition of a RICO

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enterprise.” Wagh v. Metris Direct, Inc., 363 F.3d 821, 830 (9th Cir. 2003); see also In re Nat’l

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W. Life Ins. Deferred Annuities Litig., 467 F. Supp. 2d 1071, 1084 (S.D. Cal. 2006) (finding that

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the plaintiff sufficiently alleged a claim under Section 1962(b) by alleging that the defendants

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generated income from their scheme and conduct which led to its acquisition, maintenance, and

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control of the enterprise).

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a.

Shemali

Plaintiff‟s allegations seem to indicate that Shemali acquired or maintained interest in the

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enterprise. Specifically, spreadsheets attached to the SAC indicate that Shemali generated income

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by purchasing wine from Borges and reselling it. SAC Ex. B. The spreadsheets can also provide

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a basis to infer that Shemali ordered the additional shipments of stolen wine he expected Borges to

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obtain because the spreadsheets could be construed as evidencing a planned order by Shemali
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from Borges to purchase stolen wine that was not available anywhere but in Plaintiff‟s warehouse.

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Id. Ex. C. The SAC demonstrates Shemali‟s interest in the theft by alleging that Shemali held

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close personal and business relationships with other participants in the alleged theft ring – Borges,

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Belmont Wine, and Myers. See SAC ¶ 22(i). Thus, the SAC adequately demonstrates Shemali‟s

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interest in the enterprise.

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b.

Myers

Myers‟s alleged conversation with HPD owner, Stravinski, demonstrates Myers‟s interest

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in the enterprise. Myers stated “Plaintiff would have a difficult time „proving‟ that the stolen wine

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was ever in Myers‟ possession because he made sure the shipping labels were not in his name.”

theft ring by having some of the stolen wine shipped to Sandi‟s Pet Place.” Id. ¶ 22(r). Therefore,

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For the Northern District of California

SAC ¶ 22(p). Plaintiff further stated that “Myers attempted to conceal his participation in the wine

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United States District Court

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the SAC contains enough allegations to infer Myers‟ interest.

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As to Belmont Wine, Sandi‟s Pet Place, the Rodriguezes, and Hi-Time, the SAC lacks
specific allegations of their knowledge, and this precludes claims under Section 1962(b).
c.

Conclusion

In sum, Plaintiff violated this Court‟s Order because Plaintiff failed to properly allege
greater specificity (as ordered by the Court) regarding:
(a) Receiving Defendants‟ knowledge of the alleged enterprise as to
Belmont Wine, Hi-Time, Sandi‟s Pet Place, and the Rodriguezes;

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(b) participation by Belmont Wine, Hi-Time, and Sandi‟s Pet Place
in the enterprise separate from the alleged racketeering;

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(c) the alleged mail fraud as to all Receiving Defendants; and

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(d) the allegation that Belmont Wine, Hi-Time, Sandi‟s Pet Place,
and the Rodriguezes had interest in, control over, and/or conducted
the alleged enterprise.

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24

In doing so, Plaintiff‟s Counsel recklessly and frivolously delayed judicial proceedings in

25

violation of 28 U.S.C. § 1927. See, e.g., Consumer Sols. Reo, LLC v. Hillery, No. C-08-4357

26

EMC, 2010 WL 334417, at *2-3 (N.D. Cal. Jan. 28, 2010) (affirming an award of sanctions

27

pursuant to 28 U.S.C. § 1927 when counsel unreasonably and vexatiously asserted claims that the

28

court previously ordered were not reasonable).
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1

B.

Sanctions Under This Court‟s Inherent Power

2

As noted above, sanctions under 28 U.S.C. § 1927 may not be awarded for initial

3

proceedings. See In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 435 (9th Cir. 1996). Thus,

4

Receiving Defendants seek sanctions pursuant to the Court‟s inherent power for Plaintiff initiating

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and pursuing the entire action in bad faith. See Motion for Attorneys‟ Fees at 3.

6

Sanctions under this Court‟s inherent power impose “its own particular requirements, and

within the scope of the sanctions remedy.” Christian v. Mattel, Inc., 286 F.3d 1118, 1131 (9th Cir.

9

2002). This Court must find bad faith or willful misconduct to invoke its inherent authority to

10

sanction Plaintiff‟s Counsel in the form of attorneys‟ fees. See Zambrano v. City of Tustin, 885

11

F.2d 1473, 1481-82 (9th Cir. 1989) (finding that absent express statutory authority, courts can

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For the Northern District of California

it is important that the grounds be separately articulated to assure that the conduct at issue falls

8

United States District Court

7

impose sanctions in the form of attorneys‟ fees, but only when there is a finding of bad faith or

13

willful disobedience of court rules or orders). The Zambrano holding was based on the American

14

Rule that dictates, absent express statutory authority, bad faith, or willful disobedience of a court

15

order, each party should bear the cost of its own attorneys‟ fees. Id.at 1481; see also Alyeska

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Pipeline Service Co. v. Wilderness Society, 421 U.S. 240 (1975) (affirming the American Rule).

17

As such, a finding of bad faith or willful misconduct imposes a fairly high evidentiary

18

standard. Mere recklessness does not suffice. Fink v. Gomez, 239 F.3d 989, 993-94 (9th Cir.

19

2001). Instead, recklessness must be “coupled with an improper purpose, such as an attempt to

20

influence or manipulate proceedings in one case in order to gain tactical advantage in another

21

case.” Id.; see also Yagman v. Republic Ins., 987 F.2d 622, 628 (9th Cir. 1993) (vacating

22

sanctions when there was no evidence that the attorney intended to mislead the court). These

23

sanctions “should be reserved for the „rare and exceptional case where the action is clearly

24

frivolous, legally unreasonable or without legal foundation, or brought for an improper purpose.‟”

25

Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir. 1997). For example,

26

sanctions can be imposed even if a party makes “truthful statement or a non-frivolous argument” if

27

done for an improper purpose. Fink, 239 F.3d at 992.

28

The Court finds that Receiving Defendants have not established Plaintiff‟s initial filing of
13

1

the suit was in bad faith sufficient to invoke the inherent power of the Court to impose fee shifting

2

sanctions. Plaintiff did experience a substantial theft of wine; the investigation found that

3

numerous individuals and business bought and sold the stolen wine under circumstances

4

reasonably thought to be suspicious, at least in the first instance. Although ultimately (as found

5

herein), many of the allegations were found not sufficient to support a finding of knowledge that

6

the wine was stolen as to some of Receiving Defendants, the Court cannot say that the claims

7

against them were so baseless at the outset as to establish Plaintiff‟s bad faith in initiating this

8

case.

9

C.

10

Because the Court has decided to award fees, it also decides: first, whether the requested
fees are supported; and second, whether the amount of requested fees is appropriate.
Support for Attorneys‟ Fees

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For the Northern District of California

United States District Court

11

Attorneys‟ Fees

1.

13

Traditionally, the reasonableness of attorney‟s fees is “the number of hours reasonably

14

expended on the litigation multiplied by the reasonable hour rate.” Hensley v. Eckerhart, 461 U.S.

15

424, 432 (1983). Accordingly, “the party seeking an award of fees should submit evidence

16

supporting the hours worked and the rates claimed.” Id. Counsel is “not required to record in

17

great detail how each minute of his time was expended” but should “identify the general subject

18

matter of his time expenditures.” Id. at 437. This Court has previously found that declarations by

19

attorneys of the party seeking attorneys‟ fees are sufficient to establish the reasonableness of fees.

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See Cyma (U.S.A.) Ltd. v. Lumondi, Inc., 2011 WL 1483394, Case No. C-09-2802 MHP (EMC),

21

at *2-3 (N.D. Cal. 2011). In addition, “counsel . . . should make a good faith effort to exclude

22

from a fee request hours that are excessive, redundant, or otherwise unnecessary.” Id. at 434.

23

Receiving Defendants‟ Counsel provided a declaration in support of the motion for

24

attorneys‟ fees, explaining Defendant‟s calculation of attorneys‟ lodestar. See Foote Declaration

25

¶¶ 12-13. Also, counsel claims to have reduced hours which he believes were “duplicative,

26

excessive, or not necessary to defend this action.” Id. ¶ 13.
The Amount of Attorney‟s Fees

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2.

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Receiving Defendants request that this Court grant its motion for attorneys‟ fees under
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1

Section 1927 for Plaintiff‟s Counsel to pay $174,860 and/or under this Court‟s inherent authority

2

$279,070 for the entire litigation. See Motion for Attorneys‟ Fees at 25. Since the Court grants

3

attorneys‟ fees under Section 1927 and not under the Court‟ inherent authority, the Court

4

determines the reasonableness of only the $174,860 amount.

5

The hourly rates are reasonable. The reasonable hourly rates are generally determined by

6

the relevant community where the district court sits. See Camacho v. Bridgeport, Financial, Inc.,

7

523 F.3d 973, 979 (9th Cir. 2008); see also Fallay v. S.F. City & Cty, No. C-08-2261-CRB, 2016

8

WL 879632, at *6 (N.D. Cal. Mar. 8, 2016) (stating that courts are to look at customary rates

9

charged for work performed in the relevant legal community, the attorneys‟ reputation and
experience, the quality of services, complexity of the work performed, and the results). Here, the

11

relevant community is the San Francisco Bay Area.
The reasonableness of hourly rates is also determined by the level of experience.

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For the Northern District of California

United States District Court

10

13

Camacho, 523 F.3d at 979. The billable rates for Partners John Foote and Gregory O‟Hara in the

14

instant case were $600, and counsel‟s declaration notes that Partners Foote and O‟Hara have been

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practicing civil ligation for over thirty years. See Foote Declaration ¶¶ 9-15. The hourly rate for

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Associate Karl Sung was $400, and he has been practicing civil litigation for four years. Id.

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Paralegal Lisa Phillips billed at $300. Id. These rates fall within the range of reasonable hourly

18

rates for the local area given their respective experience. See Prison Legal News v.

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Schwarzenegger, 608 F.3d 446, 455 (9th Cir. 2010) (finding that the district court did not abuse its

20

discretion when it awarded Bay Area attorneys practicing in federal civil litigation up to $700 for a

21

partner with twenty-three years of experience, $325 for an associate with five years of experience,

22

and $190 for paralegals); Gutierrez v. Wells Fargo, N.A., No. C 07-05923 WHA, 2015 WL

23

2438274, at *5 (N.D. Cal. May 21, 2015), appeal dismissed (Oct. 30, 2015) (awarding attorneys‟

24

fees for partners who billed between $475 and $975 per hour; associates with hourly rates between

25

$300 and $490); Banas v. Volcano Corp., 47 F. Supp. 3d 957, 965 (N.D. Cal. 2014) (accepting

26

hourly rates ranging from $355 to $1,095 for partners and associates in the San Francisco Bay

27

Area).

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The Court has reviewed submissions by Defendants‟ Counsel. In support of the requested
15

1

fees, Receiving Defendants‟ Counsel provided the number of hours by each lawyer‟s involvement

2

and attached a table detailing the breakdown of the amount of fees incurred by each Receiving

3

Defendant. See Foote Declaration Exs. 6-17.
Receiving Defendants request that this Court grant its motion for attorneys‟ fees under

4

motion to dismiss the Original Complaint. However, Receiving Defendants are only entitled to

7

attorneys‟ fees incurred after the Court granted Defendants‟ motion to dismiss the FAC; it was at

8

that point did Plaintiff‟s counsel violated this Court‟s Order, and thus it is only at this point did

9

some of Plaintiff‟s actions become sanctionable under Section 1927. Accordingly, the Court has

10

allocated fees per each Defendant to reflect the fees spent defending those claims which the Court

11

finds were frivolously advanced in the SAC. In making that allocation, the Court examined and

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For the Northern District of California

Section 1927 in the amount of $174,860, representing all the work incurred since the filing of the

6

United States District Court

5

estimated the percentage of time spent responding to each such claim by any particular Receiving

13

Defendant.
a.

14

Shemali

In regards to Shemali, Plaintiff violated this Court‟s Order when it failed to allege a pattern

15
16

of racketeering using mail fraud. The Court calculated the fee amount addressing this claim to be

17

$3,950.
b.

18

Myers

For Myers, Plaintiff likewise violated this Court‟s Order when it failed to allege a pattern

19
20

of racketeering using mail fraud. The Court calculated the fee amount for this violation to be

21

$3,855.
c.

22
23

Belmont Wine

As to Belmont Wine, Plaintiff violated this Court‟s Order when it failed to provide greater

24

specificity as to Belmont‟s knowledge, a pattern of racketeering under mail fraud, and interest or

25

control in the enterprise. The Court calculated the fee amount in responding to these claims total

26

$5,222.40.

27
28

d.

Sandi‟s Pet Place and the Rodriguezes

In regards to the Rodriguezes and Sandi‟s Pet Place, Plaintiff violated this Court‟s Order
16

1

when it failed to allege greater specificity to the Rodriguezes and Sandi‟s Pet Place‟s knowledge, a

2

pattern of racketeering under mail fraud, and interest or control in the enterprise. The fee amount

3

in responding to these claims total $5,433.20.
e.

4

Hi-Time

5

As to Hi-Time, Plaintiff violated this Court‟s Order when it failed to allege greater

6

specificity as to Hi-Time‟s knowledge, a pattern of racketeering under mail fraud, and interest or

7

control in the enterprise. The Court calculated the fee amount in responding to these claims total

8

$5,276.80.

9
10

Conclusion

Adding the fee amounts discussed above, the Court grants a total amount of $23,737.40 in
fees owed by Plaintiff under 28 U.S.C. § 1927.
IV.

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For the Northern District of California

United States District Court

11

3.

13

For the foregoing reasons, the Court:

14

1.

CONCLUSION

GRANTS Defendant‟s request for sanctions under 28 U.S.C. § 1927 in the amount
of $23,737.40 allocated among Receiving Defendants as stated above; and

15

DENIES Defendant‟s request for sanctions under this Court‟s inherent power.

16

2.

17

This order disposes of Docket No. 152.

18
19

IT IS SO ORDERED.

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21

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23

Dated: March 20, 2017
______________________________________
EDWARD M. CHEN
United States District Judge

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