SUTAKOVIC v. CG RYC, LLC et al

Filing 29

ORDER denying 19 Defendants' Motion for Sanctions. Signed by Magistrate Judge Edwin G. Torres on 6/8/2018. (js02)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 18-Civ-20125-WILLIAMS/TORRES
MILENA SUTAKOVIC,
Plaintiff,
v.
CG RYC, LLC, CG MIAMI RIVER
LLC, FOOD AND LEVERAGE, LLC,
STEPHANE DUPOUX, and
MEYER CHETRIT.
Defendants.
________________________________/
ORDER ON DEFENDANTS’ MOTION FOR SANCTIONS
This matter is before the Court on CG RYC, LLC’s, CG Miami River LLC’s,
Food and Leverage, LLC’s, Stephane Dupoux’s, and Meyer Chetrit’s (collectively,
“Defendants”) motion for sanctions against Milena Sutakovic’s (“Plaintiff”)
attorneys, including Robert Zarco, Beshoy Rizk, Margaret Lai, and the law firm of
Zarco Einhorn Sakowski & Brito, P.A. (collectively, the “Zarco Firm”). [D.E. 19].
More specifically, Defendants seek sanctions under (1) Fed. R. Civ. P. 11, (2) 28
U.S.C. § 1927, and (3) the Court’s inherent power.

The Zarco Firm responded to

Defendants’ motion on April 17, 2018 [D.E. 23] to which Defendants timely replied
on April 23, 2018.
disposition.

[D.E. 24].

Therefore, Defendants’ motion is now ripe for

After careful consideration of the motion, response, and relevant
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authority, and for the reasons discussed below, Defendants’ motion for sanctions is
DENIED.
I.

BACKGROUND

Plaintiff filed this action on January 11, 2018.

[D.E. 1]. Counts I and II of

the complaint allege that Defendants violated the Fair Labor Standards Act (the
“FLSA”) and that “Plaintiff is entitled to receive her full share of the tips that River
Yacht Club collection from its patrons, via the 18% gratuity, as well as any additional
tips that the patrons voluntarily included to their respective bills.”

[D.E. 1].

Plaintiff also alleges (1) that she was a server at the River Yacht Club, (2) that she
was compensated as a tipped employee, and (3) that she participated in a tip pool to
share the tips and gratuities that the River Yacht Club collected from its patrons as
service charges. Because Defendants violated the FLSA and withheld tips from
Plaintiff, she seeks monetary damages, unjust enrichment, pre-judgment interest,
and attorneys’ fees/costs under Florida Statute § 448.08.
II.
A.

APPLICABLE PRINCIPLES AND LAW

Rule 11 Sanctions Standard

“Rule 11 is intended to deter claims with no factual or legal basis at all;
creative claims, coupled even with ambiguous or inconsequential facts, may merit
dismissal, but not punishment.”
(emphasis in original).

Davis v. Carl, 9106 F.2d 533, 538 (11th Cir. 1990)

Rule 11 sanctions are proper “(1) when a party files a

pleading that has no reasonable factual basis; (2) when the party files a pleading
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that is based on 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 faith for an improper purpose.”

Worldwide

Primates, Inc. v. McGreal, 87 F.3d 1252, 1254 (11th Cir. 1996) (quoting Jones v.
International Riding Helmets, Ltd., 49 F.3d 692, 694 (11th Cir. 1995)).

Federal

Rules of Civil Procedure 11(b)(1) and 11(b)(3) state:
By presenting to the court a pleading, written motion, or other
paperCwhether by signing, filing, submitting, or later advocating itCan
attorney or unrepresented party certifies that to the best of the person=s
knowledge, information, and belief, formed after an inquiry reasonable
under the circumstances: (1) it is not being presented for any improper
purpose, such as to harass, cause unnecessary delay, or needlessly
increase the cost of litigation . . . (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 . . . . Fed. R. Civ. Pro. 11(b)(1), 11(b)(3).
Additionally, Federal Rule of Civil Procedure 11(c)(1) provides the following:
If, after notice and a reasonable opportunity to respond, the court
determines that Rule 11(b) has been violated, the court may impose an
appropriate sanction on any attorney, law firm, or party that violated
the rule or is responsible for the violation. Fed. R. Civ. Pro. 11(c)(1).
“In this circuit, a court confronted with a motion for Rule 11 sanctions first
determines whether the party’s claims are objectively frivolousCin view of the facts
or lawCand then, if they are, whether the person who signed the pleadings should
have been aware that they were frivolous; that is, whether he would’ve been aware
had he made a reasonable inquiry.

If the attorney failed to make a reasonable

inquiry, then the court must impose sanctions despite the attorney=s good faith belief
that the claims were sound.

The reasonableness of the inquiry >may depend on
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such factors as how much time for investigation was available to the signer; whether
he had to rely on a client for information as to the facts underlying the [violative
document]; . . . or whether he depended on forwarding counsel or another member of
the bar.”

Worldwide Primates, Inc., 87 F.3d at 695 (quoting Mike Ousley

Productions, Inc. v. WJBF-TV, 952 F.2d 380, 382 (11th Cir. 1992)); see also Byrne v.
Nezhat, 261 F.3d 1075, 1105 (11th Cir. 2001).

“Although sanctions are warranted

when the claimant exhibits a >deliberate indifference to obvious facts,’ they are not
warranted when the claimant=s evidence is merely weak but appears sufficient, after
a reasonable inquiry, to support a claim under existing law.@ Baker v. Adelman,
158 F.3d 516, 524 (11th Cir. 1998) (citations omitted).
B.

§ 1927 Sanctions Standard

A district court’s authority to issue sanctions under § 1927 is either broader
than or equally as broad as a court’s authority to issue sanctions under its inherent
powers.

See Cordoba v. Dillard’s, Inc., 419 F.3d 1169, 1178 n.6 (11th Cir.

2005). Sanctions are appropriate under 28 U.S.C. § 1927 where “[a]ny attorney . . .
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.”

There are three essential

requirements that must be satisfied with respect to a fee award under § 1927.
the Eleventh Circuit has explained:
First, the attorney must engage in unreasonable and vexatious conduct.
Second, that unreasonable and vexatious conduct must be conduct that
multiplies the proceedings. Finally, the dollar amount of the sanction
must bear a financial nexus to the excess proceedings, i.e., the sanction
may not exceed the costs, expenses, and attorneys’ fees reasonably
incurred because of such conduct.
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As

Peterson v. BMI Refractories, 124 F.3d 1386, 1396 (11th Cir. 1997) (citations and
quotation marks omitted).

The first requirement is satisfied “only when the

attorney’s conduct is so egregious that it is tantamount to bad faith.” Hudson v. Int’l
Computer Negotiations, Inc., 499 F.3d 1252, 1262 (11th Cir. 2007) (citation omitted).
In fact, “an attorney’s conduct must be particularly egregious to warrant the
imposition of sanctions” which means the “attorney must knowingly or recklessly
pursue a frivolous claim . . . .”

Id. (emphasis in original) (citation omitted).

Negligent conduct – standing alone – will not suffice as “something more than a lack
of merit is required.”

Id. (citation omitted).

The second requirement – relating to

multiple proceedings – is only satisfied when an attorney’s conduct “results in
proceedings which would not have been conducted otherwise.”

Daniels v. Sodexo,

Inc., 2013 WL 4008744, at *7 (M.D. Fla. Aug. 5, 2013) (citing Peterson, 124 F.3d at
1396)). As for the final requirement, any sanction award must not be excessive in
relation to the underlying misconduct.
C.

Inherent Power Sanctions Standard

A court may sanction an attorney pursuant to its “inherent power” to police
behavior that undermines the judiciary’s ability to achieve the just, orderly, and
expeditious disposition of cases. See Chambers v. NASCO, Inc., 501 U.S. 32, 43
(1991).

“Because of their very potency, inherent powers must be exercised with

restraint and discretion.” Id. at 44 (citing Roadway Express, Inc. v. Piper, 447 U.S.
752, 764 (1980)). “The inherent power ‘is both broader and narrower than other
means of imposing sanctions.’” Peer v. Lewis, 606 F.3d 1306, 1314 (11th Cir.
2010) (quoting Chambers, 501 U.S. at 46). It is broader in the sense that, “[w]hile
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other

sanction

mechanisms

only

reach

certain

individuals

or

conduct,

‘the inherent power extends to a full range of litigation abuses’ and ‘must continue to
exist to fill in the interstices.’” Id. (quoting Chambers, 501 U.S. at 46). “Indeed,
the inherent power of a court can be invoked even if procedural rules exist which
sanction

the

same

conduct,

for

these

rules

are

not

substitutes

for

the inherent power.” Id. (quoting In re Mroz, 65 F.3d 1567, 1575 (11th Cir. 1995)
(internal quotation marks omitted)).

At the same time, the inherent power is

narrower in the sense that a finding of bad faith is required to impose
such sanctions. Barnes v. Dalton, 158 F.3d 1212, 1214 (11th Cir. 1998). Ordinarily,
a court should not impose sanctions pursuant to its inherent authority if Rule
11 would suffice. See Fed. R. Civ. P. 11, Adv. Cmt. Note, 1993 amend. “But if in the
informed discretion of the court, neither the statute nor the Rules are up to the task,
the court may safely rely on its inherent power” to sanction misconduct. Chambers,
501 U.S. at 50.
“The key to unlocking a court’s inherent power is a finding of bad
faith.” Barnes, 158 F.3d at 1214.

In this context, “‘[a] finding of bad faith is

warranted where an attorney knowingly or recklessly raises a frivolous argument, or
argues a meritorious claim for the purpose of harassing an opponent. A party also
demonstrates bad faith by delaying or disrupting the litigation or hampering
enforcement of a court order.’” Id. (quoting Primus Auto. Fin. Servs., Inc. v. Batarse,
115 F.3d 644, 649 (9th Cir. 1997)). The Eleventh Circuit has recently held that “the
inherent powers standard is a subjective bad-faith standard.” Purchasing Power,
LLC v. Bluestem Brands, Inc., 851 F.3d 1218, 1223 (11th Cir. 2017). Importantly
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however, the court clarified that absent direct evidence of subjective bad faith, this
standard can also be met if an attorney’s conduct is “tantamount to bad faith,”
meaning the “attorney's conduct is so egregious that it could only be committed in
bad faith.” Id. at 1224–25 (citing Roadway Exp., 447 U.S. at 767). An attorney’s
conduct is “tantamount to bad faith” if he “recklessly raises a frivolous
argument.” Id. at 1225 (quoting Barnes, 158 F.3d at 1214). “Recklessness alone
does not satisfy the inherent powers standard,” but “recklessness plus a frivolous
argument suffice.” Id.
The Eleventh Circuit has offered additional guidance to lower courts in
considering whether to invoke their inherent power to impose sanctions:
If a district court is unsure whether to sanction a party under
its inherent powers, it should look to the guidance of the Supreme Court
in Chambers. The purpose of the inherent power is both to vindicate
judicial authority without resorting to contempt of court sanctions and
to make the non-violating party whole. See Chambers, 501 U.S. at 45–
46. The inherent power must be exercised with restraint and discretion.
This power is not a remedy for protracted litigation; it is for rectifying
disobedience, regardless of whether such disobedience interfered with
the conduct of the trial. See id. at 44. Courts considering whether to
impose sanctions under their inherent power should look for
disobedience and be guided by the purpose of vindicating judicial
authority.
Id.
III.

ANALYSIS

Defendants’ motion is aimed at Plaintiff’s attorneys – the Zarco Firm – for
filing and continuing to prosecute a frivolous lawsuit. Plaintiff filed this case for the
misappropriation of tips under the FLSA. But, Defendants argue that Plaintiff has
no actionable claim because Defendants’ pay practices qualify for an exemption.
Defendants claim that they have provided the Zarco Firm with documentation
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necessary to prove that Defendants qualify for the exemption but that the Zarco Firm
continues to pursue a frivolous case. Because the Zarco firm is fully aware that
Plaintiff’s claim lacks merit, Defendants allege that the pursuit of this case is (1)
vexatious, (2) in bad faith, (3) for an improper purpose, and (4) to harass Defendants.
As further support for its allegation that the Zarco Firm filed this case in bad
faith, Defendants claim that Robert Zarco is a direct competitor of the River Yacht
Club and that his true motivation for filing this lawsuit is to harm another business
for financial gain.

Defendants also argue that the Zarco Firm has extensive

expertise involving the FLSA and that it should have conducted a reasonable
pre-filing inquiry into the merits of this case before filing suit.

And even if

Defendants gave the Zarco Firm the benefit of the doubt, Defendants contend that
the Zarco Firm is on notice that an exemption applies to Plaintiff’s pay and time
records. For these reasons, Defendants conclude that sanctions are appropriate
under (1) Rule 11, (2) § 1927, and (3) the Court’s inherent power.
A.

Rule 11 Sanctions

In considering whether Rule 11 sanctions are appropriate, Defendants’ motion
lacks merit for at least two important reasons. First, the motion represents an
improper attempt to convert a disagreement over the factual allegations and legal
arguments in Plaintiff’s complaint into a sanctions dispute. Yet, a Rule 11 motion is
not an avenue to seek judgment on the merits of a case. Instead, its purpose is to
determine whether an attorney has abused the judicial process.

See Bigford v.

BESM, Inc., 2012 WL 12886184, at *2 (S.D. Fla. Oct. 12, 2012) (“‘Rule 11 should not
be used to raise issues as to the legal sufficiency of a claim or defense that more
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appropriately can be disposed of by a motion to dismiss, a motion for judgment on the
pleadings, a motion for summary judgment, or a trial on the merits.”’) (quoting In re
New Motor Vehicles Canadian Export Antitrust Litigation, 244 F.R.D. 70, 74 (D. Me.
2007) (denying Rule 11 motion without prejudice to its renewal “if and when
[Defendant] obtains summary judgment”) (citations omitted)); see also Safe-Strap
Co., Inc. v. Koala Corp., 270 F. Supp. 2d 407, 417-21 (S.D.N.Y. 2003) (discussing that
Rule 11 sanctions are not a substitute for motions for summary judgment).
As the plain language of Rule 11 indicates, “an attorney . . . certifies that to the
best of the person’s knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances” that a court document “is not being presented
for an improper purpose”, “the claims, defenses, and other legal contentions are
warranted by existing law,” and the “factual contentions have evidentiary support . .
. .” Fed. R. Civ. Pro. 11(b).

Because Defendants are relying on the wrong type of

motion for the relief sought, their motion must be DENIED.
Second, Defendants’ motion must be denied because it is premature at this
stage of the case.

As the Eleventh Circuit has found, Rule 11 sanctions are

ordinarily not determined until the end of a case:
Although the timing of sanctions rests in the discretion of the trial
judge, it is anticipated that in the case of pleadings the sanctions issue
under Rule 11 normally will be determined at the end of the litigation,
and in the case of motions at the time when the motion is decided or
shortly thereafter.
Donaldson v. Clark, 819 F.2d 1551, 1555 (11th Cir. 1987) (quotation marks and
citation omitted).

The Eleventh Circuit’s position is consistent with the Rules

Advisory Committee which “anticipated that in the case of pleadings the sanctions
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issue under Rule 11 normally will be determined at the end of the litigation. . .
.”

Fed. R. Civ. P. 11 (Advisory Committee Notes, 1983 Amendment); see

also Lichtenstein v. Consolidated Serv. Group, Inc., 173 F.3d 17, 23 (1st Cir.
1999) (emphasizing that “[c]ourts should, and often do, defer consideration of certain
kinds of sanctions motions until the end of [the litigation] to gain a full sense of the
case and to avoid unnecessary delay of disposition of the case on the merits. This is
a sensible practice where [as here] the thrust of the sanctions motion is that
institution of the case itself was improper”); Hallwood Realty Partners, L.P. v.
Gotham Partners, L.P., 2000 WL 528633, at *1 (S.D.N.Y. May 2, 2000) (denying Rule
11 motion without prejudice “to renewal at conclusion of litigation”); Wright and
Miller, Federal Practice and Procedure: Civil 3d § 1337.1 (2004) (stating that when
“the challenged conduct is the institution of the action itself . . . the question whether
there has been a Rule 11 violation generally is not decided until after the litigation is
completed, in order to avoid delaying the disposition of the merits of the case”). Given
the facts of this case, we see no reason to deviate from the preferred practice
described above.
Defendants’ motion is also premature because Rule 11 contemplates a
two-step, objective inquiry. See Baker, 158 F.3d at 524. “Applying that test is not
feasible at this stage of the litigation, as it is not possible to determine on this record
if the allegations” in the complaint “are objectively frivolous in view of the law and
facts, whether Plaintiff and its counsel should have been aware that the allegations
were frivolous after making a reasonable inquiry, and whether [Plaintiff’s complaint]
is baseless.” KB Home v. Smith, 2014 WL 12621583, at *2 (M.D. Fla. May 7, 2014).
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Because Rule 11 sanctions should ordinarily be reserved at the end of a case,
Defendants’ motion is DENIED with leave to renew prior to entry of judgment or
dismissal. See, e.g., Baker, 158 F.3d at 523 (“Although the timing of sanctions rests
in the district judge’s discretion, Rule 11 sanctions ‘normally will be determined at
the end of litigation.’”).
B.

§ 1927 Sanctions

In considering whether § 1927 sanctions are appropriate, we assess whether
an attorney’s conduct merits bad faith, which “turns not on the attorney’s subjective
intent, but on the attorney’s objective conduct.” Doria v. Class Action Servs., LLC,
261 F.R.D. 678, 683 (S.D. Fla. 2009) (citing Amlong & Amlong, P.A. v. Denny’s, Inc.,
500 F.3d 1230, 1239 (11th Cir. 2007)). Thus, the crucial component of this analysis
is based on whether the attorney’s “conduct was unreasonable and vexatious when
measured against an objective standard.”

Hudson, 499 F.3d at 1262 (citation

omitted). Yet, this does not mean that an attorney’s intent is completely irrelevant
because “an attorney’s subjective state of mind is frequently an important piece of
the calculus” and an “act is more likely to fall outside the bounds of acceptable
conduct and therefore be ‘unreasonable and vexatious’ if it is done with a malicious
purpose or intent.” Hudson, 499 F.3d at 1262 (citation omitted).
Here, Defendants’ motion is misplaced because there is not enough evidence
to find that the Zarco Firm’s actions are tantamount to bad faith.

While

Defendants may ultimately prevail on their motion to dismiss, there is not enough
evidence to conclude, at this time, that the Zarco Firm’s conduct is “unreasonable and
vexatious when measured against an objective standard.”
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Hudson, 499 F.3d at

1262. As the Eleventh Circuit has explained, it is important that courts not:
[E]ngage in post hoc reasoning by concluding that, because a plaintiff
did not ultimately prevail, his action must have been unreasonable or
without foundation. This kind of hindsight logic could discourage all
but the most airtight claims, for seldom can a prospective plaintiff be
sure of ultimate success. No matter how honest one’s belief that he has
been the victim of discrimination, no matter how meritorious one’s
claim may appear at the outset, the course of litigation is rarely
predictable. Decisive facts may not emerge until discovery or trial.
The law may change or clarify in the midst of litigation. Even when
the law or the facts appear questionable or unfavorable at the outset, a
party may have an entirely reasonable ground for bringing suit.
Cordoba, 419 F.3d at 1181 (quoting Christiansburg Garment Co. v. Equal
Employment Opportunity Comm’n, 434 U.S. 412, 421-22, (1978)). For example, even
if Plaintiff’s claim is exceptionally weak, Defendants have not shown that it was
“entirely ‘without foundation’” as required under the statute.

See Christiansburg

Garment Co., 434 U.S. at 420. And even if we assume that the Zarco Firm was
negligent in failing to realize that Plaintiff’s case lacks merit, that would still be
insufficient to make a finding of bad faith. See Schwartz v. Millon Air, Inc., 341 F.3d
1220, 1225 (11th Cir. 2003) (“For sanctions under section 1927 to be appropriate,
something more than a lack of merit is required) (citation omitted). Accordingly,
Defendants’ motion for sanctions under § 1927 is DENIED.
C.

Inherent Power Sanctions

The final issue to consider is whether sanctions should be imposed against
Plaintiff under the Court’s inherent power. We need not discuss this issue at length
because sanctions under the Court’s inherent power fails for many of the same
reasons as presented above. For example, “[w]hen considering sanctions under the
court’s inherent power, the threshold of bad faith conduct is ‘at least as high’ as the
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threshold of bad faith conduct for sanctions under 28 U.S.C. § 1927.”

Springs v.

Gielow, 2016 WL 6093496, at *1 (N.D. Fla. July 26, 2016), Report and
Recommendation adopted, 2016 WL 6090946 (N.D. Fla. Oct. 18, 2016) (citing Peer,
606 F.3d at 1316; Amlong & Amlong, P.A. v. Denny’s, Inc., 500 F.3d 1230, 1252 (11th
Cir. 2007)). This means that, if there is a lack of evidence to find that Plaintiff
should be sanctioned under § 1927, the Court’s inherent power is also inapplicable.
Moreover, to unlock a Court’s inherent power, there must be a finding of bad faith
and as we explained earlier, there is simply not enough evidence to make that
conclusion at this stage of the case.

See Peer, 606 F.3d at 1314 (“The key to

unlocking a court’s inherent power is a finding of bad faith.”); see also In re Mroz, 65
F.3d at 1575 (“Invocation of a Court’s inherent power requires a finding of bad
faith.”). Therefore, Defendants’ motion for sanctions under the Court’s inherent
power is DENIED.
IV.

CONCLUSION

For the foregoing reasons, it is hereby ORDERED AND ADJUDGED that
Defendants’ motion for sanctions [D.E. 19] is DENIED.
DONE AND ORDERED in Chambers at Miami, Florida, this 8th day of
June, 2018.

/s/ Edwin G. Torres
EDWIN G. TORRES
United States Magistrate Judge

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