Bald et al v. Wells Fargo Bank, N.A. et al

Filing 66

ORDER ADOPTING THE MAGISTRATE JUDGE'S FINDINGS AND ADOPTING RECOMMENDATION THAT MOTION FOR RULE 11 SANCTIONS BE DENIED re 63 , 64 - - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 12/10/13. (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
DAVID EMORY BALD, EMILY
LELIS,

)
)
)
Plaintiffs,
)
)
vs.
)
)
WELLS FARGO BANK, N.A.; THE )
LAW OFFICE OF DAVID B.
)
ROSEN, a Hawaii professional )
corporation; DAVID B. ROSEN, )
individually; et al.,
)
)
Defendants.
)
____________________________ )

CIVIL. NO. 13-00135 SOM/KSC
ORDER ADOPTING THE MAGISTRATE
JUDGE’S FINDINGS AND ADOPTING
RECOMMENDATION THAT MOTION FOR
RULE 11 SANCTIONS BE DENIED

ORDER ADOPTING THE MAGISTRATE JUDGE’S FINDINGS AND ADOPTING
RECOMMENDATION THAT MOTION FOR RULE 11 SANCTIONS BE DENIED
I.

INTRODUCTION.
Before the court is a ruling by the Magistrate Judge

declining to issue sanctions under Rule 11 of the Federal Rules
of Civil Procedure against Plaintiffs David Emory Bald and Emily
Lelis (collectively, “Plaintiffs”) and their attorneys.

The

Magistrate Judge’s ruling addresses a motion for sanctions filed
by Defendants The Law Offices of David B. Rosen and David B.
Rosen (collectively, “Rosen Defendants”) in Bald v. Wells Fargo
Bank, CIV. 13-00135 SOM/KSC, 2013 WL 3864449 (D. Haw. 2013).
This court adopts in full the Magistrate Judge’s findings and
his recommendation that Rule 11 sanctions be denied.

II.

BACKGROUND
A full recitation of the facts in this case is

provided in this court’s order granting Wells Fargo’s motion to
dismiss.

See Bald v. Wells Fargo Bank, CIV. 13-00135 SOM/KS,

2013 WL 3864449 (D. Haw. July 25, 2013); ECF No. 45.
In summary, Plaintiffs owned properties that were
foreclosed upon by Wells Fargo N.A.

The Rosen Defendants

provided legal representation to Wells Fargo in the foreclosure
proceedings.
Plaintiffs’ claims against Wells Fargo and the Rosen
Defendants revolved around two assertions: first, that Wells
Fargo breached a duty to Plaintiffs by advertising foreclosure
sales through which only quitclaim deeds would be provided; and
second, that Wells Fargo violated section 667-5 of Hawaii
Revised Statutes, and the terms of their mortgage agreement with
Plaintiffs, by failing to publish notices of the postponements
of the foreclosure auctions.

ECF No. 45.

Plaintiffs filed their First Amended Complaint in
state court on September 7, 2012, and the case was removed to
federal court on March 20, 2013.

ECF No. 1.

On October 10,

2012, counsel for the Rosen Defendants served Plaintiffs’
attorneys with a “safe harbor” letter pursuant to Rule 11(c)(2),
informing Plaintiffs of the Rosen Defendants’ intention to bring
a motion for sanctions and giving Plaintiffs 21 days to withdraw

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their claims against the Rosen Defendants.

See ECF No.33-8.

The Rosen Defendants subsequently sent two further Rule 11
letters.

See ECF No. 33-6; ECF No. 33-7.

Plaintiffs initially

refused to amend or withdraw their claims against the Rosen
Defendants.
On June 06, 2013, the Rosen Defendants filed their
motion for Rule 11 sanctions.

ECF No. 33.

On July 1, 2013,

before this court had heard argument on the Rosen Defendants’
motion to dismiss, Plaintiffs dismissed the Rosen Defendants
from the lawsuit.

ECF No. 40.

Given the Rosen Defendants’

dismissal from this case, this court denied their motion to
dismiss as moot.

ECF No. 45.

The Rosen Defendants’ motion for

Rule 11 sanctions, however, remained before the Magistrate
Judge.
The suit by Bald and Lelis was not the only matter in
which the Rosen Defendants were sued for their role in a
mortgage foreclosure sale.

Parallel to this proceeding, the

Rosen Defendants were sued in two cases that raised nearly
identical legal issues--Civil No. 12-00509 SOM-RLP and Civil No.
12-00514 SOM-RLP (the “Gibo and Lima cases”).

See Lima v.

Deutsche Bank Nat. Trust Co., Civ. No. 12-00509, 2013 WL 1856255
(D. Haw. Apr. 30, 2013).

The Rosen Defendants moved for Rule 11

sanctions in the Gibo and Lima cases, and the Magistrate Judge
deferred ruling on sanctions in the instant case until this

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court had considered the motions in Gibo and Lima.

This court

denied the Rosen Defendants’ motion for Rule 11 sanctions in the
Gibo and Lima cases.

See Lima v. Deutsche Bank Nat. Trust Co.,

Civ. 12-00509 SOM, 2013 WL 5890662 (D. Haw. Oct. 30, 2013).
Relying on this court’s ruling, the Magistrate Judge issued an F
& R, recommending that the court similarly deny the Rosen
Defendants’ motion in this case.
III.

ECF No. 63.

STANDARD OF REVIEW.
Under Local Rule 72.9, post-judgment motions for

sanctions are automatically referred to a magistrate judge, who
then “shall submit to a district judge findings and
recommendations.”

L.R. 72.9.

This court must review the

findings and recommendations in accordance with Local Rule 74.2,
which requires this court to “make a de novo determination of
those portions of the report . . . to which objection is made.”
L.R. 74.2.

The de novo standard requires the district court to

consider a matter anew and arrive at its own independent
conclusions.

See United States v. Remsing, 874 F.2d 614, 617

(9th Cir.1989).

This court may accept, reject, or modify, in

whole or in part, the findings or recommendations.
IV.

Id.

RULE 11 LEGAL STANDARD.
Rule 11(b) of the Federal Rules of Civil Procedure

requires parties to “certif[y] that to the best of the[ir]

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knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances,” the following:
(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; [and]
(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. P. 11(b).

Rule 11 applies to all pleadings and

written motions filed with the court.

Fed. R. Civ. P. 11(a).

If 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. P. 11(c).

When

Rule 11 sanctions are party-initiated, the burden is on the
moving party to demonstrate why sanctions are justified.

See Tom

Growney Equip., Inc. v. Shelley Irr. Dev., Inc., 834 F.2d 833,
837 (9th Cir. 1987); cf. United Nat. Ins. Co. v. R&D Latex Corp.,
242 F.3d 1102, 1116 (9th Cir. 2001) (holding that “sua sponte
sanctions will ordinarily be imposed only in situations that are
akin to a contempt of court”).
Rule 11 sanctions may appropriately be imposed on the
signer of a court filing if it “is filed for an improper purpose,
or . . . [is] frivolous.”

Townsend v. Holman Consulting Corp.,
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929 F.2d 1358, 1362 (9th Cir. 1990) (en banc).

The Ninth Circuit

uses the word “frivolous” as shorthand to denote a filing that is
“both baseless and made without a reasonable and competent
inquiry.”

Id.

objective.”

“The standard governing both inquiries is

Id.

In other words, a court must decide whether “a

reasonable attorney [would] have believed plaintiffs' complaint
to be well-founded . . . based on what a reasonable attorney
would have known at the time.”

In re Keegan Mgmt. Co., Sec.

Litig., 78 F.3d 431, 434 (9th Cir. 1996).

The “baseless” and

“reasonable inquiry” requirements are conjunctive, not
disjunctive.

Therefore, “[a]n attorney may not be sanctioned for

a [filing] that is not well-founded, so long as she conducted a
reasonable inquiry.”

Id.

By the same token, a signer cannot “be

sanctioned for a complaint which is well-founded, solely because
she failed to conduct a reasonable inquiry[.]”

Id.

Indeed,

“[b]ecause the frivolousness prong of Rule 11 is measured by
objective reasonableness, whether [a party] actually relied on
the cases which show its claims aren't frivolous is irrelevant.”
Id. (internal citations omitted).
“Rule 11 is an extraordinary remedy, one to be
exercised with extreme caution.”

Operating Engineers Pension

Trust v. A-C Co., 859 F.2d 1336, 1345 (9th Cir. 1988).

Sanctions

are reserved “for the rare and exceptional case where the action
is clearly frivolous . . . .” Id. at 1344.

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V.

ANALYSIS.
The Magistrate Judge noted that “the claims asserted

[in this case] are identical to those asserted in Gibo and in
Lima.”

ECF No. 63.

Therefore, the Magistrate Judge concluded

that there was “no legal basis to deviate from [this court’s]
determination [in Gibo and Lima) that Plaintiffs’ claims are not
baseless or frivolous, and that this is not the ‘rare and
exceptional case’ that justifies the imposition of Rule 11
sanctions.”

Id.

The Rosen Defendants object to the Magistrate

Judge’s reliance on this court’s denial of sanctions in Lima and
Gibo, not because they point to any factual or legal differences
in the cases, but because they contend that the “decision and the
reasoning behind [this court’s] order . . . was flawed.”

ECF No.

64.
The Rosen Defendants’ primary argument in favor of
sanctions, both here and in Gibo and Lima, is that it was
baseless for Plaintiffs to assert that section 667-5 of Hawaii
Revised Statutes requires banks to provide written notice of
postponement when selling properties subject to foreclosure.

In

its order denying sanctions in Gibo and Lima, this court noted:
The Rosen Defendants argue that Plaintiffs'
claims against them are frivolous because
section 667-5 of Hawaii Revised Statutes
places no obligation on the Rosen Defendants
to publish a new written notice for each
postponement. Section 667-5 requires an
attorney to advertise any postponement of a
sale through "public announcement." While
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this court found in its dismissal order that
"no statute, contract provision, or case
authority equates ‘announcement' with
‘publication'," that does not mean that
Plaintiffs' argument was wholly implausible.
As the Ninth Circuit has noted, "Neither HRS
§ 667-5 nor Hawaii case law defines the term
‘public announcement.'" In re
Kekauoha-Alisa, 674 F.3d 1083, 1088 (9th Cir.
2012). It is therefore not "baseless" to
suggest that the required public announcement
be written as opposed to oral.
Lima, 2013 WL 5890662, at *7.
The Rosen Defendants argue that this court’s reasoning
gave too little weight to what they describe as a “solid line of
federal case law from within the Ninth Circuit that was directly
on point.”

ECF No. 64.

The Rosen Defendants argue that this

“solid line” of case law was binding on this court, and therefore
it was frivolous for Plaintiffs to press their claims in the face
of such controlling precedent.

However, the Rosen Defendants, as

they did in Gibo and Lima, point only to a bankruptcy court case
decided in 2007.

In re Kanamu-Kalehuanani Kekauoha-Alisa,

05-01215, 2007 WL 1752266 (Bankr. D. Haw. June 15, 2007).

As

this court stated in its Gibo and Lima order, “neither that case,
nor the Bankruptcy Appellate Panel's affirmance of that part of
the order, In re Kekauoha-Alisa, 407 B.R. 442 (B.A.P. 9th Cir.
2009), is binding on this court, and Plaintiffs were entitled to
explore whether this court was persuaded by those authorities.”
Lima, 2013 WL 5890662, at *7.

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The Rosen Defendants do not appear to dispute this
conclusion.

However, they argue that the Bankruptcy Court’s

definition of “public announcement” was “explicitly adopted by
the Ninth Circuit” in In re Kekauoha-Alisa, 674 F.3d 1083 (9th
Cir. 2012), which was an appeal of a different order in the same
bankruptcy case.

The Bankruptcy Court’s order holding that

written announcements were not required by Section 667-5 was not
appealed to the Ninth Circuit.

Instead, as this court pointed

out in its Gibo and Lima order, the order that was appealed
involved the question of whether several “private conversations”
constitute a “public announcement” within the meaning of section
667-5.
In that context, the Ninth Circuit panel made the
following observation, which forms the bedrock of the Rosen
Defendants’ objection:
The bankruptcy court turned to the
dictionary, noting that Merriam-Websters
defines “announce” as “to make known
publicly: PROCLAIM” and “announcement” as
“public notification or declaration.” No
party suggests a different definition, and
this interpretation captures the essence of
what the statute requires: Mortgagees shall
publicly announce the postponement of a
foreclosure sale to a subsequent date.
The Rosen Defendants’ sole objection to this court’s
reasoning in its Gibo and Lima order is that it deemed the Ninth
Circuit to only be deciding the question of whether private
conversations constituted “public announcements,” when, in fact,
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the Rosen Defendants believe the panel “went considerably farther
than that, by explicitly adopting the bankruptcy court’s
definition of ‘public announcement.’” ECF No. 64.
However, even if that dubious proposition were correct,
the Bankruptcy Court’s quoted definition sought only to
distinguish between “private” and “public” announcements, not
between oral and written notice.

The Rosen Defendants appear to

be saying that a Court of Appeals sub silencio adopts all of the
statutory holdings of a lower court, even on collateral issues
and on questions not appealed, simply by speaking approvingly of
a portion of the lower court’s statutory interpretation.
First, as a matter of pure language, there is nothing
in the excerpted section of the panel’s order stating
unequivocally that oral announcements are permissible and that
written announcements are not required.

Hence, nothing in the

Ninth Circuit’s opinion–-nor even anything in the appealed
Bankruptcy Court order–-compels the conclusion that oral notice
is sufficient.
More fundamentally, the question of whether the
announcement had to be written was simply not before the Ninth
Circuit.

Even if the panel had stated in unequivocal language

that written announcements were not required, it would have been
dicta, and therefore not necessarily fatal to Plaintiffs’ claims.
See Best Life Assur. Co. of Cal. v. C.I.R., 281 F.3d 828, 834

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(9th Cir. 2002) (“[A] statement made during the course of
delivering a judicial opinion, but one that is unnecessary to the
decision in the case [is] not precedential.” (internal quotation
omitted)).

For a panel’s reasoning to be transformed into

circuit law, the panel must “confront[] an issue germane to the
eventual resolution of the case, and resolve[] it after reasoned
consideration in a published opinion.”
328 F.3d 1181, 1186 (9th Cir. 2003).

Miranda B. v. Kitzhaber,
The question of whether an

announcement must be written was not “germane to the eventual
resolution of the case” because that was not the holding of the
appealed order and no party was making such an argument before
the Ninth Circuit.

The excerpted section was not “reasoned

consideration” of the question of oral versus written
announcement.
With nothing in the Ninth Circuit’s ruling directly on
point, Plaintiffs were entitled to press their claims in this
court.

Even though this court was not ultimately persuaded,

Plaintiffs’ argument was not frivolous.

The Rosen Defendants’

argument is that this court was bound by the Ninth Circuit’s sub
silentio adoption of a Bankruptcy Court ruling it was not
reviewing on a question of law not before it.

Moreover, the

Rosen Defendants are not merely arguing that their reading of
Ninth Circuit case law is correct, but that it is so plainly the
only permissible reading that any other interpretation is

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baseless.

In so claiming, the Rosen Defendants more than

overstate the law.
The Rosen Defendants’ sole objection to the Magistrate
Judge’s determination is that the Magistrate Judge relied on this
court’s Gibo and Lima orders with regard to Plaintiffs’ section
667-5 claims.

The Rosen Defendants can hardly be surprised that

the court concludes that the Magistrate Judge’s reasoning was
correct and adopts his findings, as well as the recommendation
that this is not the "rare and exceptional case" that justifies
the imposition of sanctions under Rule 11.

Operating Engineers

Pension Trust, 859 F.2d at 1345.
VI.

CONCLUSION.
Having reviewed the portions of the F & R objected to,

the court adopts all of the Magistrate Judge’s findings, as well
as the recommendation that the Rosen Defendants’ motion for Rule
11 sanctions be denied.

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IT IS SO ORDERED.
DATED: Honolulu, Hawaii, December 10, 2013.

/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge

David Emory Bald, et al v. Wells Fargo N.A., et al; Civ. No. 1300135 SOM/KSC; ORDER ADOPTING MAGISTRATE JUDGE’S FINDINGS AND
RECOMMENDATION TO DENY MOTION FOR RULE 11 SANCTIONS
13