Frost v. LG Corporation et al
Filing
129
ORDER DENYING 85 MOTION FOR SANCTIONS. Signed by Judge Beth Labson Freeman on 6/27/2017. (blflc4, COURT STAFF) (Filed on 6/27/2017)
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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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A. FROST, ET AL.,
Plaintiffs,
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LG ELECTRONICS INC., et al.,
[Re: ECF 85]
Defendants.
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United States District Court
Northern District of California
ORDER DENYING MOTION FOR
SANCTIONS
v.
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Case No. 16-cv-05206-BLF
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Plaintiffs bring this class action suit alleging that the LG and Samsung defendants engaged
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in an unlawful conspiracy to fix and suppress compensation for their employees, violating section
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1 of the Sherman Act, 15 U.S.C. § 1; the Cartwright Act, California Business & Professions Code
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§16720, et seq.; and the New Jersey Antitrust Act, N.J. Stat Ann. § 56:9-3. Compl., ECF 48.
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Before the Court is Defendants LG Electronics U.S.A. and LG Display America, Inc. (“LG”)’s
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motion for sanctions under Fed. R. Civ. P. 11 and 28 U.S.C. § 1927. Mot., ECF 85. Pursuant to
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Civ. L.R. 7-1(b), the Court finds LG’s motion for sanctions suitable for submission without oral
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argument and hereby VACATES the hearing scheduled for July 13, 2017. For reasons set forth
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below, the Court DENIES the motion.
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I.
BACKGROUND
Plaintiffs’ complaint alleges that no later than January 1, 2005, LG and other Samsung
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defendants engaged in an unlawful conspiracy to fix and suppress compensation for their
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employees, including their workforce in the United States. Compl. ¶¶ 1, 4 n.2, 45. According to
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the complaint, Plaintiff Frost was contacted via LinkedIn by a recruiter seeking to fill a position
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with Samsung, but who later informed Frost “I made a mistake! I’m not supposed to poach LG for
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Samsung!!! Sorry! The two companies have an agreement that they won’t steal each other’s
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employees.” Id. ¶ 79. Plaintiffs also allege that Plaintiff Ra was told by a manager at Samsung’s
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finance department that “We do not hire people from LG.” Id. ¶ 80.
According to LG, Plaintiffs’ allegations are false because LG does not have a policy or
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prohibition against recruiting, “cold-calling,” or hiring Samsung employees. Kliwinski Decl. ¶ 3,
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ECF 85-4; Lee Decl. ¶ 3, ECF 85-3. Specifically, LG asserts that LG United States has hired
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employees directly from Samsung-affiliated companies over the last 11 years. Kliwinski Decl. ¶
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5. In December 22, 2016, about a month after the complaint is filed, LG counsel provided
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Plaintiffs’ counsel with evidence allegedly showing that LG does not have the policy or
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prohibitions against hiring Samsung employees. Mot. 4. However, Plaintiffs refused to withdraw
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United States District Court
Northern District of California
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or correct the complaint as requested by LG. Letter, ECF 85-1.
II.
LEGAL STANDARD
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A.
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Rule 11 of the Federal Rules of Civil Procedure imposes upon attorneys a duty to certify
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that they have read any pleadings or motions they file with the court and that such pleadings and
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motions are well-grounded in fact, have a colorable basis in law, and are not filed for an improper
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purpose. Fed. R. Civ. P. 11(b); Business Guides, Inc. v. Chromatic Comm. Enters., Inc., 498 U.S.
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533, 542 (1991). If a court finds Rule 11(b) has been violated, the court may impose appropriate
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sanctions to deter similar conduct. Fed. R. Civ. P. 11(c)(1); see also Cooter & Gell v. Hartmarx
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Corp., 496 U.S. 384, 393 (1990) (“[T]he central purpose of Rule 11 is to deter baseless filings in
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district court.”). However, “Rule 11 is an extraordinary remedy, one to be exercised with extreme
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caution.” Operating Eng’rs Pension Trust v. A-C Co., 859 F.2d 1336, 1345 (9th Cir. 1988). Rule
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11 sanctions should be reserved for the “rare and exceptional case where the action is clearly
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frivolous, legally unreasonable or without legal foundation, or brought for an improper purpose.”
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Id. at 1344. “Rule 11 must not be construed so as to conflict with the primary duty of an attorney
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to represent his or her client zealously.” Id.
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Fed. R. Civ. Proc. 11
In determining whether Rule 11 has been violated, a “court must consider factual questions
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regarding the nature of the attorney’s pre-filing inquiry and the factual basis of the pleading.”
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Cooter, 496 U.S. at 399. However, courts should “avoid using the wisdom of hindsight and
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should test the signer’s conduct by inquiring what was reasonable to believe at the time the
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pleading, motion, or other paper was submitted.” Fed. R. Civ. P. 11 Advisory Comm. Notes (1993
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Amendments). “[T]he imposition of a Rule 11 sanction is not a judgment on the merits of an
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action. Rather, it requires the determination of a collateral issue: whether the attorney has abused
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the judicial process, and, if so, what sanction would be appropriate.” Cooter, 496 U.S. at 396.
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In the Ninth Circuit, Rule 11 sanctions are appropriately imposed where: (1) a paper is
filed with the court for an improper purpose; or (2) the paper is “frivolous.” Intamin Ltd. v.
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Magnetar Techs., Corp., 483 F.3d 1328, 1338 (Fed. Cir. 2007). A “frivolous” argument or claim
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is one that is “both baseless and made without a reasonable and competent inquiry.” Townsend v.
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Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1990)) (emphasis added). Accordingly,
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United States District Court
Northern District of California
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when sanctions are sought on the basis of a complaint, the Court must determine: “(1) whether the
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complaint is legally or factually ‘baseless’ from an objective perspective, and (2) if the attorney
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has conducted ‘a reasonable and competent inquiry’ before signing and filing it.” Christian v.
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Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002).
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B.
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28 U.S.C. § 1927 provides that “[a]ny attorney . . . admitted to conduct cases in any court
28 U.S.C. § 1927
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of the United States . . . who so multiplies the proceedings in any case unreasonably and
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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.” The statute is intended to deter
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harassing legal tactics and to compensate their victims. See Haynes v. City and Cty. of San
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Francisco, 688 F.3d 984, 987-88 (9th Cir. 2012). A court may award sanctions under § 1927 if
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the moving party shows (1) that opposing counsel acted “unreasonab[ly]”; (2) that, by doing so,
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counsel “multipl[ied] proceedings”; and (3) that counsel acted with subjective “bad faith.” MGIC
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Indem. Corp. v. Moore, 952 F.2d 1120, 1121 (9th Cir. 1991).
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While Rule 11 authorizes sanctions only for filings that were frivolous when they were
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made, see id., “Section 1927 imposes a continuing duty on counsel to dismiss claims that are no
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longer viable.” Burda v. M. Ecker Co., 2 F.3d 769, 778 (7th Cir. 1993); accord Trulis v. Barton,
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107 F.3d 685, 692 (9th Cir. 1995) (holding that a district court abused its discretion by refusing to
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impose sanctions under § 1927 where the plaintiffs “vexatiously multiplied the proceedings” by
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forcing the defendant to move for summary judgment rather than dismissing their claims
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voluntarily after it became clear that they would fail).
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III.
DISCUSSION
LG asserts that Plaintiffs’ allegations that LG participated in a conspiracy by implementing
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a policy of not recruiting or directly hiring Samsung employees are factually baseless. Mot. 5.
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According to LG, the evidence it has provided to Plaintiffs’ counsel rebuts any contention that LG
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engaged in conduct consistent with the alleged conspiracy. Id. at 9. LG further contends that
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Plaintiffs’ counsel did not conduct a reasonable inquiry. Id. at 6. Specifically, LG claims that
anyone with a LinkedIn account could have found LinkedIn users that have work experience for
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United States District Court
Northern District of California
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both “LG” and “Samsung.” Id.
Plaintiffs counter that the complaint is supported by credible evidence. Opp’n 3, ECF 90.
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For example, the complaint alleges a representation by a recruiter to Plaintiff Frost, referencing an
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agreement between LG and Samsung not to recruit or hire each other’s employees and a Samsung
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employee stating that Samsung do not hire from LG. Id. at 4. Plaintiffs further argue that the
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alleged LinkedIn numbers proffered by LG do not negate the plausible claims that an unlawful
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agreement to suppress compensation still exists but with exceptions; or that “the agreement exists,
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but there is occasional cheating.” Id. at 6. Plaintiffs also aver that they have performed a
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thorough investigation by obtaining evidence in support of the allegations in their complaint. Id.
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at 7.
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Based on the Rule 11 legal standard, Plaintiffs would only violate Rule 11 in filing of the
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complaint if both of the following prongs are met: “(1) the complaint is legally or factually
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‘baseless’ from an objective perspective,” and (2) the attorney has not conducted “‘a reasonable
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and competent inquiry’ before signing and filing it.” Christian, 286 F.3d at 1127.
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With regard to the first prong, the Court finds that the complaint is not “baseless” from an
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objective perspective. As noted above, Plaintiffs have recounted certain statements by a recruiter
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and a Samsung manager that provide some basis for their claims. Even though LG characterizes
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the factual support as merely “anecdotal evidence [that] arguably [supports]” the allegations in the
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complaint, Mot. 5, the so-called “anecdotal evidence” still provides some factual support for
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Plaintiffs’ claims. Even assuming that the factual basis is weak and might fail to withstand a
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motion to dismiss, the first prong of the Rule 11 analysis is not met as long as the complaint is
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supported by some factual basis from an objective perspective. See United Nat. Ins. Co. v. R&D
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Latex Corp., 242 F.3d 1102, 1117 (9th Cir. 2001) (reversing an award of sanction in part because
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counsel had “some plausible basis, albeit quite a weak one”).
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Even though LG submitted declarations stating that LG does not have a policy or
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prohibition against hiring Samsung employees and that LG has hired employees from Samsung as
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corroborated by the LinkedIn database, the declarations do not demonstrate that the complaint is
objectively baseless. When confronted with evidence allegedly contrary to their claims, Plaintiffs
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United States District Court
Northern District of California
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have “the right to decide whether to dismiss the action or proceed with discovery.” Benedict v.
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Hewlett-Packard Co., No. 13-00119-LHK, 2014 WL 234207, at *8 (N.D. Cal. Jan. 21, 2014).
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This is because Plaintiffs may be understandably “skeptical of a defendant’s assertion of
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innocence.” Id. (citing Malibu Media, LLC v. Maness, No. 12-01873, 2012 WL 7848837, at *6
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(D. Colo. Dec. 4, 2012)). Plaintiffs persuasively point out that LG does not claim that it “never
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had such an agreement with Samsung” but only that there is no such agreement. Opp’n 1, 5-6. As
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to the numbers of hires from Samsung to LG based on the LinkedIn database, Plaintiffs argue that
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those data do not definitively rule out the existence of an agreement. Id. at 6. Further analysis
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would be necessary to negate the possibility that exceptions or cheatings might have occurred in
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the presence of an alleged agreement between LG and Samsung. Id. The Court finds that
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Plaintiffs’ decision to continue litigating is consistent with the counsel’s duty to zealously
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represent his clients and is not objectively baseless. As noted by other courts, “Rule 11 cannot
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possibly require that an attorney accept as true the uncorroborated denials of an adversary because
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that would violate the Ninth Circuit’s unambiguous holding that ‘Rule 11 must not be construed so
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as to conflict with the primary duty of an attorney to represent his or her client zealously.’”
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Benedict, 2014 WL 234207, at *8 (citing Operating Eng’rs Pension Trust v. A-C Co., 859 F.2d
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1336, 1344 (9th Cir. 1988)).
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LG further claims that the complaint is not well-founded and attacks the strength and
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relevance of each factual allegation. Reply 2-3, ECF 97. However, the Court finds LG’s
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arguments more suited to a motion to dismiss or on an adjudication on the merits of the action,
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which the Court does not entertain on the instant motion. Because LG fails to show that Plaintiffs’
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complaint is legally or factually baseless, there can be no violation of Rule 11. The Court thus
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need not address whether Plaintiffs conducted “a reasonable and competent inquiry” prior to filing
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of the complaint.
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Turning to 28 U.S.C. § 1927 as a ground for LG’s sanction motion, the Court finds that §
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1927 is not applicable at this stage of the proceeding and a sanction pursuant to this ground would
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not be appropriate. The Ninth Circuit has explicitly held that this section authorizes sanctions
only for the “multipli[cation of] proceedings,” so it applies only to unnecessary filings and tactics
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United States District Court
Northern District of California
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once a lawsuit has begun, and not to an initial pleading. In re Keegan Mgmt. Co., Sec. Litig., 78
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F.3d 431, 435 (9th Cir. 1996) (stating that “[w]e have twice expressly held that § 1927 cannot be
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applied to an initial pleading”); Best Odds Corp. v. iBus Media Ltd., 657 F. App’x 641, 642 (9th
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Cir. 2016) (same).
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LG argues that § 1927 is applicable because Plaintiffs’ counsel has refused to dismiss the
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complaint and proceedings have multiplied based on the filing of an opposition to its motion to
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dismiss. Reply 5 (citing Trulis v. Barton, 107 F.3d 685, 692 (9th Cir. 1995)). LG’s reliance on
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Trulis and other cases is misplaced. In Trulis, the debtor’s attorney continued suit until summary
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judgment even though the suit was explicitly barred by an order confirming a bankruptcy plan.
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Trulis, 107 F.3d at 692. Contrary to Trulis where proceedings had multiplied to require filings of
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summary judgment motions, LG is attacking Plaintiffs’ initial complaint and refusal to withdraw
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the complaint, as well as their opposition to a motion to dismiss. First, the Court does not construe
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a refusal to withdraw an initial complaint this early in the proceeding, without more, to be a
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multiplication of proceedings under § 1927. At the time the instant sanction motion was filed,
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there had not been an initial case management conference so there could not have been substantive
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discovery, either. Second, Plaintiffs also had no choice but to oppose the motion to dismiss given
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that that the complaint was not objectively baseless, and that Plaintiffs were entitled to a zealous
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representation. Cf. Pascual v. Wells Fargo Bank, N.A., No. 13-02005-KAW, 2014 WL 582264,
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at *7 (N.D. Cal. Feb. 13, 2014) (finding that the filing of an amended complaint to be subject to
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sanction under § 1927 because the amended complaint contains no additional facts to avoid
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preemption and statute of limitations, grounds upon which the initial complaint was dismissed).
Even if this Court were to apply § 1927 here, sanction would still not be warranted because
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there is no adequate showing of bad faith, one of the necessary factors for a § 1927 sanction. The
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Ninth Circuit had held that “[b]ad faith is present when an attorney knowingly or recklessly raises
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a frivolous argument, or argues a meritorious claim for the purpose of harassing an opponent.”
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Estate of Blas v. Winkler, 792 F.2d 858, 860 (9th Cir. 1986). As discussed above in connection
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with Rule 11, even assuming that the LG defendants have recruited or hired Samsung employees,
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this does not render the complaint objectively baseless. Plaintiffs’ decision to continue the suit in
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United States District Court
Northern District of California
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light of this knowledge does not demonstrate that their counsel acted unreasonably. Because of
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the inadequate showing of bad faith, the Court refuses to impose a monetary sanction pursuant to §
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1927.
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IV.
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ORDER
For the foregoing reasons, the Court DENIES LG’s motion for Rule 11 and § 1927
sanctions. This Order is issued without prejudice.
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IT IS SO ORDERED.
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Dated: June 27, 2017
______________________________________
BETH LABSON FREEMAN
United States District Judge
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