Kahama VI, LLC v. HJH, LLC et al

Filing 181

ORDER denying 164 Motion for Sanctions; denying 165 Motion for Sanctions; denying 166 Motion for Sanctions; denying 167 Motion for Sanctions; denying 168 Motion for Sanctions. Signed by Judge James S. Moody, Jr on 11/7/2013. (LN)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
KAHAMA VI, LLC,
Plaintiff,
v.

Case No: 8:11-cv-2029-T-30TBM

HJH, LLC, ROBERT E.W. MCMILLAN,
III , WILLIAM R. RIVEIRO, JOHN
BAHNG, HOWARD S. MARKS, OLD
REPUBLIC NATIONAL TITLE
INSURANCE COMPANY and KEVIN
PATRICK DONAGHY,
Defendants.

ORDER
THIS CAUSE comes before the Court upon the Defendant Howard S. Marks’
Motions for Sanctions (Dkt. #164, 165, 166, 167, and 168) and Plaintiff's Response in
Opposition to the Motions (Dkt. #179). The Court, having reviewed the Motions, response,
and being otherwise advised in the premises, concludes that the Motions should be denied.
Background
On September 7, 2011, Plaintiff brought this action to enforce certain negotiable
instruments, including a promissory note, renewals and guarantees against HJH, LLC and
John Bahng, Robert E.W. McMillan, III, Kirsten L. Riveiro, and William R. Riveiro as
guarantors of the debt. Plaintiff then filed a Second Amended Complaint, joining
Defendants Howard S. Marks (“Marks”) and Old Republic National Title Insurance
Company (“Old Republic”), adding additional claims for abuse of process, fraudulent

transfer, slander of title, unjust enrichment, breach of contract/good faith and fair dealing
and breach of fiduciary duty. Kahama brought these claims based on Marks and Old
Republic’s actions regarding a quiet title case involving the real property secured as
collateral for the note and mortgage, in the case styled HJH, LLC v. Volusia County,
Florida, et. al., Volusia County Circuit Court Case No. 2008-20156-CINS-02. In that case,
Marks represents Defendant HJH, LLC and was retained by Defendant Old Republic, the
joint title insurance company for Plaintiff and Defendant HJH, LLC.
Kahama served Marks with the Second Amended Complaint on July 8, 2013. He
filed a motion to dismiss all of the claims, which this Court granted except for the
fraudulent transfer claim.

Plaintiff received leave to amend the Second Amended

Complaint. Defendant Marks’ filed the Motions for Sanctions at issue in this Order alleging
that Kahama, and its attorney, violated Federal Rule of Civil Procedure 11 and 28 U.S.C.
§ 1927 by pursuing the claims for abuse of process, slander of title, unjust enrichment,
breach of contract, and breach of fiduciary duty.
Discussion
I. Sanctions Pursuant to Federal Rule of Civil Procedure 11
Pursuant to Federal Rule of Civil Procedure 11(b), any individual who files a
pleading, written motion, or other paper with the Court implicitly certifies that, to the best
of that person's knowledge after a reasonable inquiry:
(1) [the paper] is not being presented for any improper purpose, such as to
harass, cause unnecessary delay, or needlessly increase the cost of litigation;
(2) the claims, defenses, and other legal contentions are warranted by existing
law or by a nonfrivolous argument for extending, modifying, or reversing
existing law or for establishing new law;

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(3) the factual contentions have evidentiary support or, if specifically so
identified, will likely have evidentiary support after a reasonable opportunity
for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if
specifically so identified, are reasonably based on belief or a lack of
information.
Regarding Rule 11's “safe harbor” provision and requirement to file a motion for
sanctions separately from other motions, Rule 11(c)(2) provides as follows:
A motion for sanctions must be made separately from any other motion and
must describe the specific conduct that allegedly violates Rule 11(b). The
motion must be served under Rule 5, but it must not be filed or be presented
to the court if the challenged paper, claim, defense, contention, or denial is
withdrawn or appropriately corrected within 21 days after service or within
another time the court sets. If warranted, the court may award to the
prevailing party the reasonable expenses, including attorney's fees, incurred
for the motion.
The purpose of Rule 11 sanctions is to “reduce frivolous claims, defenses, or
motions, and to deter costly meritless maneuvers.” Kaplan v. DaimlerChrysler, A. G., 331
F.3d 1251, 1255 (11th Cir. 2003) (quoting Massengale v. Ray, 267 F.3d 1298, 1302 (11th
Cir. 2001)). See also Didie v. Howes, 988 F.2d 1097, 1104 (11th Cir. 1993) (“Rule 11
sanctions are designed to ‘discourage dilatory or abusive tactics and help to streamline the
litigation process by lessening frivolous claims or defenses .... They ‘may be imposed for
the purpose of deterrence, compensation and punishment.’ ”) (citations omitted).
Rule 11 sanctions are warranted in three scenarios: (1) when a party files a pleading
that has no reasonable factual basis; (2) when the party files a pleading that is based on a
legal theory that has no reasonable chance of success and that cannot be advanced as a
reasonable argument to change existing law; or (3) when the party files a pleading in bad

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faith for an improper purpose. See Didie, 988 F.2d at 1104 (citations omitted); Kaplan, 331
F.3d at 1255 (citations omitted).
Marks has not made a sufficient showing that Plaintiff's counts for abuse of process,
slander of title, unjust enrichment, breach of contract, and breach of fiduciary duty in the
Second Amended Complaint were frivolous and completely lacked a factual or legal basis.
Given the benefit of hindsight, a review of this case demonstrates that Plaintiff's claims
lacked sufficient allegations to sustain those claims on a Motion to Dismiss. Nonetheless,
the claims were not objectively frivolous and Marks makes no showing of conduct by
counsel so egregious as to be tantamount to bad faith.
The record reflects that Plaintiff conducted pre-filing discovery in this case and
based these allegations on facts and circumstances discovered during the prosecution of
the quiet title case. The Second Amended Complaint was filed two years after the original
complaint. In those two years the parties have attended mediation, and Plaintiff has filed a
Motion for Summary Judgment and engaged in discovery and extensive motion practice
regarding several of the issues in this case. Therefore, the Court concludes that Rule 11
sanctions are not warranted at this time.
II. Sanctions pursuant to 28 U.S.C. § 1927
28 U.S.C. § 1927 provides:
Any attorney or other person admitted to conduct cases in any court of the
United States or any Territory thereof who so multiplies the proceedings in
any case unreasonably and vexatiously may be required by the court to
satisfy personally the excess costs, expenses, and attorneys' fees reasonably
incurred because of such conduct.
In the Eleventh Circuit there are three requirements a party must satisfy with respect
to an award of sanctions under § 1927: “(1) an attorney must engage in unreasonable and
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vexatious conduct; (2) such unreasonable and vexatious conduct must multiply the
proceedings; and (3) the amount of the sanction cannot exceed the costs occasioned by the
objectionable conduct.” Norelus v. Denny's, Inc., 628 F.3d 1270, 1281 (11th Cir. 2010)
(internal quotations omitted). The Eleventh Circuit has long held that “the provisions of §
1927, being penal in nature, must be strictly construed.” Id.
An attorney multiplies court proceedings “unreasonably and vexatiously, thereby
justifying sanctions under 28 U.S.C. § 1927, only when the attorney's conduct is so
egregious that it is tantamount to bad faith.” Id. (internal quotations omitted). The Motions
do not provide sufficient facts to show conduct so egregious that it amounts to bad faith on
the part of Kahama and its attorney to justify sanctions based on allegations in the Second
Amended Complaint. Therefore, the Court concludes that sanctions pursuant to 28 U.S.C.
§ 1927 are not warranted at this time.
It is therefore ORDERED AND ADJUDGED that the Motions for Sanctions (Dkts.
#164, 165, 166, 167, and 168) are DENIED.
DONE and ORDERED in Tampa, Florida, this 7th day of November, 2013.

Copies furnished to:
Counsel/Parties of Record
S:\Odd\2011\11-cv-2029 rule 11 motion.docx

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