Sumotext Corp. -v- Zoove, Inc., et al
Filing
514
ORDER DENYING 483 , 486 DEFENDANTS' MOTIONS FOR ATTORNEYS' FEES AND COSTS. Signed by Judge Beth Labson Freeman on 7/27/2020. (blflc1S, COURT STAFF) (Filed on 7/27/2020)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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SUMOTEXT CORP.,
Plaintiff,
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v.
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ZOOVE, INC., et al.,
Defendants.
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United States District Court
Northern District of California
Case No. 16-cv-01370-BLF
ORDER DENYING DEFENDANTS’
MOTIONS FOR ATTORNEYS’ FEES
AND COSTS
[Re: ECF 483, 486]
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This order addresses two motions for attorneys’ fees and costs, the first brought by
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Defendants Zoove, Inc., Virtual Hold Technology, and VHT StarStar (collectively, “Zoove”), and
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the second brought by Defendant StarSteve, LLC (“StarSteve”). See Zoove Mot., ECF 483;
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StarSteve Mot., ECF 486. The motions have been taken under submission without oral argument.
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See Order Submitting Motions, ECF 506.
The motions are DENIED for the reasons discussed below.
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I.
BACKGROUND
Plaintiff Sumotext Corporation (“Sumotext”) filed this action in March 2016, asserting
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breach of contract and related state law claims arising out of Zoove’s termination of Sumotext’s
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leases of StarStar numbers. See Compl., ECF 1. Several rounds of motion practice resulted in a
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third amended complaint (“TAC”) containing several of the original state law claims as well as
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later-added federal antitrust claims. See TAC, ECF 218. In April 2018, the Court dismissed
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Defendant Mblox, Inc. from the action and denied the remaining Defendants’ motions to dismiss
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the TAC, thus settling the pleadings. See Order, ECF 251. Zoove and StarSteve answered the
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TAC in May 2018, see Answers, ECF 252, 255, and the parties spent the next year on discovery.
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In August 2019, Sumotext dismissed its state law claims pursuant to a stipulation with Defendants,
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leaving only two federal antitrust claims in the TAC: a claim for restraint of trade in violation of
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Section 1 of the Sherman Act, and a claim for conspiracy to monopolize and monopolization in
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violation of Section 2 of the Sherman Act. See Order Approving Joint Stipulation, ECF 335.
Defendants’ motion for summary judgment on the antitrust claims was denied on
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December 20, 2019. See Order Denying Defendants’ Motion for Summary Judgment, ECF 376
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(sealed), 382 (public). On January 23, 2020, Defendants sent Sumotext an Offer of Judgment
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pursuant to Federal Rule of Civil Procedure 68, offering to allow Sumotext to take judgment
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against all Defendants in the amount of $1.7 million. See Bloch Decl. ¶ 3 & Exh. A, ECF 483-1,
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483-2. Sumotext did not respond to the Rule 68 offer, which expired two weeks later on February
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5, 2020. See Bloch Decl. ¶ 4, ECF 483-1. A jury trial on Sumotext’s antitrust claims commenced
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United States District Court
Northern District of California
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on February 24, 2020. See Minute Entry, ECF 454. On March 6, 2020, the jury rendered a verdict
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for Defendants and against Sumotext. See Jury Verdict, ECF 470. Judgment for Defendants was
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entered on the same date. Judgment, ECF 471.
Defendants thereafter filed the present motions, asking the Court to award them attorneys’
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fees and costs as sanctions for Sumotext’s litigation conduct. Zoove requests an award in the
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amount of fees and costs incurred after expiration the Rule 68 offer – $648,688.26 in attorney and
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paralegal fees, and $117,171.41 in expert fees and costs. StarSteve requests an award in the
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amount of all fees and costs it incurred in the litigation, totaling $391,110.85.
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II.
LEGAL STANDARD
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“Three primary sources of authority enable courts to sanction parties or their lawyers for
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improper conduct: (1) Federal Rule of Civil Procedure 11, which applies to signed writings filed
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with the court, (2) 28 U.S.C. § 1927, which is aimed at penalizing conduct that unreasonably and
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vexatiously multiplies the proceedings, and (3) the court’s inherent power.” Fink v. Gomez, 239
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F.3d 989, 991 (9th Cir. 2001). “Each of these sanctions alternatives has its own particular
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requirements, and it is important that the grounds be separately articulated to assure that the
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conduct at issue falls within the scope of the sanctions remedy.” Christian v. Mattel, Inc., 286
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F.3d 1118, 1131 (9th Cir. 2002). Defendants request sanctions under the second and third sources
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of authority.
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Under § 1927, an attorney “who so multiplies the proceedings in any case unreasonably
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and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and
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attorneys’ fees reasonably incurred because of such conduct.” 28 U.S.C. § 1927. “[S]ection 1927
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does not authorize recovery from a party or an employee, but only from an attorney or otherwise
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admitted representative of a party.” Kaass Law v. Wells Fargo Bank, N.A., 799 F.3d 1290, 1293
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(9th Cir. 2015) (quotation marks and citation omitted). “The imposition of any sanction under 28
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U.S.C. § 1927 must be accompanied by a finding that the sanctioned attorney acted recklessly or
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in bad faith or committed intentional misconduct.” Edwards v. Alameda-Contra Costa Transit
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Dist., 796 F. App’x 461, 462 (9th Cir. 2020) (quotation marks and citation omitted).
Under its inherent authority, a district court may impose sanctions on a party or its counsel
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United States District Court
Northern District of California
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for bad faith conduct. See Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1183-84
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(2017); Roadway Express, Inc. v. Piper, 447 US 752, 766 (1980). “Recklessness suffices for §
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1927 sanctions, but sanctions imposed under the district court’s inherent authority require a bad
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faith finding.” Lahiri v. Universal Music & Video Distribution Corp., 606 F.3d 1216, 1219 (9th
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Cir. 2010).
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III.
DISCUSSION
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Defendants ask the Court to award them attorneys’ fees and costs under Federal Rules of
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Civil Procedure 54(d) and 68, 28 U.S.C. § 1927, and the Court’s inherent power. The Court first
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addresses Rules 54(d) and 68, which do not confer authority on the Court to impose the sanctions
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requested here. The Court next addresses § 1927 and, finally, its inherent power.
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A.
Federal Rule of Civil Procedure 54(d)
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Defendants argue that Federal Rule of Civil Procedure 54(d) and Civil Local Rule 54-5
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grant the Court discretion to award attorneys’ fees and costs in appropriate circumstances. Rule
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54(d) requires that “[a] claim for attorney’s fees and related nontaxable expenses must be made by
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motion unless the substantive law requires those fees to be proved at trial as an element of
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damages,” and it provides guidance as the timing and contents of such a motion. Fed. R. Civ. P.
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54(d)(1), (2). Civil Local Rule 54-5 sets forth additional requirements for a Rule 54(d) motion.
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See Civ. L.R. 54-5.
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While Rule 54(d) creates a mechanism for seeking attorneys’ fees and costs, it does not
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create a right to recovery. See MRO Commc’ns, Inc. v. Am. Tel. & Tel. Co., 197 F.3d 1276, 1280
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(9th Cir. 1999). “[T]here must be another source of authority for such an award.” Id. at 1281.
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“The requirement under Rule 54(d)(2) of an independent source of authority for an award of
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attorneys’ fees gives effect to the ‘American Rule’ that each party must bear its own attorneys’
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fees in the absence of a rule, statute or contract authorizing such an award.” Id.
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Zoove’s motion was timely filed within fourteen days after entry of judgment. See Fed. R.
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Civ. P. 54(d)(2) (requiring that motion “be filed no later than 14 days after the entry of
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judgment”). StarSteve’s motion was filed after the fourteen-day period, but the Court granted
StarSteve’s motion for an extension of time in light of the COVID-19 pandemic. See Order
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United States District Court
Northern District of California
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Granting StarSteve’s Mot. for Extension, ECF 490. However, while Defendants’ motions are
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properly before the Court, they cannot be granted absent an independent source of sanctioning
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authority.
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B.
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Defendants suggest that Federal Rule of Civil Procedure 68 provides a basis for awarding
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attorneys’ fees and costs. That rule provides that “[a]t least 14 days before the date set for trial, a
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party defending against a claim may serve on an opposing party an offer to allow judgment on
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specified terms, with the costs then accrued.” Fed. R. Civ. P. 68(a). “If the judgment that the
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offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the
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costs incurred after the offer was made.” Fed. R. Civ. P. 68(d). Zoove cites Rule 68 in requesting
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an award of fees and costs incurred after expiration of Defendants’ Rule 68 offer. See Zoove’s
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Mot. at 1, ECF 483. While StarSteve requests all fees and costs incurred in the litigation,
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StarSteve makes alternative request for fees and costs incurred after expiration of Defendants’
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Rule 68 offer. See StarSteve’s Mot. at 2, ECF 486.
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Federal Rule of Civil Procedure 68
Sumotext correctly points out that Rule 68 does not apply in this case because Defendants
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prevailed at trial. “Federal Rule 68 is inapplicable in a case in which the defendant obtains
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judgment.” MRO Commc’ns, 197 F.3d at 1280. In their reply briefs, Defendants concede that
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Rule 68 does not provide an independent basis for awarding fees and costs here, but they argue
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that the Court should take Sumotext’s rejection of a seven-figure offer of judgment into account
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when considering whether to impose sanctions under § 1927 or the Court’s inherent authority. See
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Zoove’s Reply at 3-4, ECF 497; StarSteve’s Reply at 18, ECF 501.
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None of the cases cited by Defendants suggests that a plaintiff’s rejection of a Rule 68
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offer has any bearing on imposition of sanctions against the plaintiff for asserted litigation
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misconduct. Zoom’s reliance on Marek v. Chesny, 473 U.S. 1 (1985), is misplaced. Marek
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addressed “whether attorney’s fees incurred by a plaintiff subsequent to an offer of settlement
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under Federal Rule of Civil Procedure 68 must be paid by the defendant under 42 U.S.C. § 1988,
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when the plaintiff recovers a judgment less than the offer.” Marek, 473 U.S. at 3. The Supreme
Court answered that question in the negative, holding that “[c]ivil rights plaintiffs – along with
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United States District Court
Northern District of California
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other plaintiffs – who reject an offer more favorable than what is thereafter recovered at trial will
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not recover attorney’s fees for services performed after the offer is rejected.” Id. at 10. Marek has
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no application to the present case, which is not a civil rights suit and in which Defendants
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prevailed at trial. The other cases cited by Defendants likewise offer no support for their position.
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See, e.g., Farr v. Healtheast, Inc., No. CIV. A. 91-6960, 1993 WL 220680, at *1 (E.D. Pa. June 9,
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1993) (no mention of Rule 68 in order granting summary judgment for defendants and directing
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defendants to brief their request for attorneys’ fees and costs under statute and the court’s inherent
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power); Wei v. Bodner, No. CIV. 89-1137 (AET), 1992 WL 165860, at *8 (D.N.J. Apr. 8, 1992),
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aff’d, 983 F.2d 1054 (3d Cir. 1992) (no mention of Rule 68 in order awarding prevailing
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defendants attorneys’ fees and costs under statute and Rule 11).
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Moreover, in the Court’s view, consideration of the Rule 68 offer would favor Sumotext,
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not Defendants. As discussed below, Defendants assert that the claims in this case were so
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baseless that Sumotext’s insistence on litigating them warrants imposition of sanctions. That
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assertion is undercut by the fact that, on the eve of trial, Defendants apparently thought they had
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enough exposure on the claims to warrant a $1.7 million offer of judgment.
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Accordingly, the Court concludes that Rule 68 neither authorizes nor supports Defendants’
motions for sanctions.
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C.
28 U.S.C. § 1927
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Section 1927 permits a court to sanction an attorney who “unreasonably and vexatiously”
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multiplies the proceedings in a case. 28 U.S.C. § 1927. “The key term in the statute is
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‘vexatiously’; carelessly, negligently, or unreasonably multiplying the proceedings is not enough.”
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In re Girardi, 611 F.3d 1027, 1061 (9th Cir. 2010). “The imposition of any sanction under 28
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U.S.C. § 1927 must be accompanied by a finding that the sanctioned attorney acted recklessly or
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in bad faith or committed intentional misconduct.” Edwards, 796 F. App’x at 462 (quotation
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marks and citation omitted). Any sanction under § 1927 must be imposed against the individual
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attorney who engaged in the improper conduct, not against the law firm. See Kaass Law, 799 F.3d
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United States District Court
Northern District of California
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at 1293.
It is unclear whether Defendants actually seek sanctions against Sumotext’s attorneys,
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despite Defendants’ citations to § 1927. Neither motion acknowledges that sanctions under
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§ 1927 may be imposed against an attorney but not against a party. Zoove does not identify any of
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Sumotext’s attorneys by name. StarSteve’s motion contains a single reference Sumotext’s counsel
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Julie Greathouse, asserting that she “demonized” StarSteve’s president, Steve Doumar, during
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Sumotext’s opening statement. See StarSteve’s Mot. at 5. In support of this assertion, StarSteve
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quotes a single sentence of the opening statement, in which Ms. Greathouse told the jury that the
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evidence would show Mr. Doumar met with Sumotext’s customers without Sumotext’s
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knowledge. See id. To the extent StarSteve seeks imposition of sanctions against Ms. Greathouse
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– which, again, is unclear from the briefing – it has failed to show how Ms. Greathouse’s
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statement unreasonably and vexatiously multiplied the proceedings. The statement was consistent
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with Sumotext’s theory of the case and indicated what Sumotext expected to prove at trial.
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StarSteve offers no other evidence that would support an award of sanctions against Ms.
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Greathouse under § 1927.
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Defendants’ motions for attorneys’ fees and costs pursuant to § 1927 is DENIED.
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D.
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A district court has “inherent authority to sanction a litigant for bad-faith conduct by
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Inherent Authority
ordering it to pay the other side’s legal fees.” Goodyear Tire, 137 S. Ct. at 1183-84. The court’s
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authority is limited to “the fees the innocent party incurred solely because of the misconduct – or
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put another way, to the fees that party would not have incurred but for the bad faith.” Id. at 1184.
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The district court must make a specific finding of “bad faith or conduct tantamount to bad faith.”
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Fink, 239 F.3d at 994. Bad faith “includes a broad range of willful improper conduct.” Id. at 992.
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For example, “[a] finding of bad faith is warranted where an attorney knowingly or recklessly
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raises a frivolous argument, or argues a meritorious claim for the purpose of harassing an
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opponent.” Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir. 1997) (quotation
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marks and citation omitted). “A party also demonstrates bad faith by delaying or disrupting the
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litigation or hampering enforcement of a court order.” Id. (quotation marks and citation omitted).
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Zoove does not acknowledge that bad faith is the relevant standard for imposition of
United States District Court
Northern District of California
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sanctions under a court’s inherent power or even mention the term “bad faith.” Under the
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subheading “Why the Court Should Award Fees and Costs,” Zoove argues that Sumotext ignored
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Defendants’ Rule 68 offer and therefore should be required to pay the attorneys’ fees Zoove
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incurred between expiration of the Rule 68 offer and the jury’s verdict because “[w]hat’s sauce for
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the goose is sauce for the gander.” Zoove’s Mot. at 1, ECF 483. As discussed above, Rule 68
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does not apply when judgment is entered for the defendant, and Zoove has cited no authority
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suggesting that rejection of a Rule 68 offer can constitute bad faith. Zoove also asserts that
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“defendants have been forced to sift through an ever-changing collection of claims,” noting that
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Sumotext dismissed its state law claims in August 2019 and certain antitrust claims shortly before
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trial. Zoove’s Mot. at 1, ECF 483. The state law claims survived vigorous motion practice, and
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the antitrust claims survived summary judgment. That Sumotext ultimately decided not to go to
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trial on certain claims is not evidence of bad faith.
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StarSteve recites the relevant standard, bad faith, and it argues that Sumotext should be
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sanctioned for pursuing claims that had no legal basis. StarSteve notes that it obtained dismissal
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of certain claims prior to trial and ultimately prevailed on the remaining claims. That Sumotext’s
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claims were narrowed through motion practice and ultimately defeated does not establish bad
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faith. StarSteve offers no evidence of the type that has supported other courts’ exercise of inherent
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authority to impose sanctions. For example, in Lahiri the Ninth Circuit found that an experienced
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copyright lawyer spent years litigating a suit that was obviously and objectively baseless. See
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Lahiri, 606 F.3d at 1221. Here, Sumotext’s antitrust claims survived summary judgment and
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therefore cannot be characterized as objectively baseless. In Lahiri, the copyright lawyer
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misrepresented applicable Indian law to the district court and attempted to cause the district
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judge’s recusal by retaining the judge’s former law firm to defend him against a sanctions motion.
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See Lahiri, 606 F.3d at 1221. Here, no such conduct has been alleged or proved.
“The bad faith requirement sets a high threshold.” Primus, 115 F.3d at 649. “Because of
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their very potency, inherent powers must be exercised with restraint and discretion.” Chambers v.
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NASCO, Inc., 501 U.S. 32, 44 (1991). Defendants have not come close to meeting the high
threshold to show that Sumotext’s conduct in the present case constituted or was tantamount to
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United States District Court
Northern District of California
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bad faith.
Defendants’ motions for attorneys’ fees and costs pursuant to the Court’s inherent power is
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DENIED.
IV.
ORDER
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Defendants’ motions for attorneys’ fees and costs are DENIED.
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This order terminates ECF 483 and 486.
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Dated: July 27, 2020
______________________________________
BETH LABSON FREEMAN
United States District Judge
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