Firkins et al v. TitleOne Corporation
MEMORANDUM DECISION AND ORDER finding as moot 52 Motion to Dismiss; finding as moot 65 Motion to Dismiss for Lack of Jurisdiction; finding as moot 68 Motion for Sanctions; denying 70 Motion to Strike; denying 72 Motion for Attorney Fees. P ursuant to the 69 Notice of Voluntary Dismissal, this action is DISMISSED without prejudice and the Clerk is directed to close this case. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by cjm)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
RUSSELL FIRKINS, RENA FIRKINS,
HIGHLAND SERVICES CO., INC.
PROFIT SHARING PLAN, DOUGLAS
R. CIRCLE as Trustee, DOUGLAS
RICHARD CIRCLE and JAN ALISON
CIRCLE 1984 FAMILY TRUST,
Case No. 1:10-CV-110-BLW
MEMORANDUM DECISION AND
The Court has before it a motion for sanctions under Rule 11 and a motion for
attorney fees. The motions are fully briefed and at issue. For the reasons explained
below, the Court will deny both motions.
On February 26, 2010, plaintiffs, a group of investors, filed this class action suit
against TitleOne, claiming that TitleOne breached its duties as a trustee under an
indenture contract and caused the investors to lose millions of dollars. Plaintiffs alleged
that this Court had subject matter jurisdiction under the Class Action Fairness Act
(“CAFA”), 28 U.S.C. § 1332(d). See Complaint (Dkt. 1) at ¶ 12.
Memorandum Decision & Order – page 1
Following briefing and argument by TitleOne and the plaintiffs, this Court
dismissed the original complaint but granted leave to amend. Plaintiffs filed an amended
complaint that also cited CAFA as the basis for subject matter jurisdiction. TitleOne
moved to dismiss the amended complaint, and a hearing was scheduled for October 28,
2010, to resolve the motion.
To this point, TitleOne had not challenged plaintiffs’ claim that subject matter
rested on CAFA. But two days before the hearing, in an e-mail to TitleOne’s counsel,
plaintiffs’ counsel raised this issue, questioning his own allegation of subject matter
jurisdiction. In that e-mail, plaintiffs’ counsel notes that in another case he was pursuing,
opposing counsel had argued that CAFA does not apply to claims related to securities.
As the e-mail continues, plaintiffs’ counsel offers his own assessment of that argument
applied to this case, concluding that “[a]lthough this is not a securities case, it certainly
relates to securities.” He goes on to attach a copy of a past decision from this Court
finding CAFA did not apply to securities claims, and notes that “although arguably
distinguishable, [it] addresses a similar issue.” The e-mail ends by asking for TitleOne’s
“thoughts as to how to proceed.”
The case from this Court attached to the e-mail was Carmona v. Bryant, 2006 WL
1043987 (D.Id. April 19, 2006). Plaintiff’s counsel in that case – Philip Gordon – is also
one of the local counsel representing plaintiffs in the present case. In Carmona – decided
about four years before this suit was filed – Gordon argued that his case should be
remanded to state court because this Court had no subject matter jurisdiction under
Memorandum Decision & Order – page 2
CAFA. More specifically, Gordon argued that the CAFA exception was broad and
covered cases like his involving securities and the breach of fiduciary duties. See
Plaintiff’s Brief in Carmona Litigation CV-06-78-BLW (Dkt. 14). The Court adopted
Gordon’s argument, granting his motion and remanding the case to state court.
Turning back to the present case, plaintiff’s counsel followed up on his e-mail
notification to TitleOne’s counsel by notifying the Court about the issue. The Court
directed plaintiffs to file a Notice by November 22, 2010, indicating whether they would
proceed with their case here or dismiss it and re-file in state court. On that date, plaintiffs
notified the Court that they would dismiss their case.
On November 30, 2010, plaintiffs filed a motion to dismiss for lack of subject
matter jurisdiction. TitleOne filed a response brief and a motion for sanctions under Rule
11. Plaintiffs responded by filing (1) a notice of voluntary dismissal under Rule
41(a)(1)(A) and (2) a motion to strike the Rule 11 motion. TitleOne then filed a motion
for attorney fees.
Both the motion for sanctions and the motion for attorney fees are based on the
same alleged misconduct by plaintiff’s counsel. TitleOne alleges that attorney Phil
Gordon knew that CAFA could not be a basis for subject matter jurisdiction in this suit
because he had prevailed on that very issue in a case a few years earlier, and yet he
nevertheless filed this suit based on CAFA.
TitleOne’s Motion For Attorney Fees
Memorandum Decision & Order – page 3
TitleOne’s motion for attorney fees is based on Idaho Code § 12-121, which
provides: “In any civil action, the judge may award reasonable attorney's fees to the
prevailing party or parties . . . .” Fee awards under this statute also must meet the criteria
set by I.R.C.P. 54(e)(1): “ [A]ttorney fees under section 12-121, Idaho Code, may be
awarded by the court only when it finds, from the facts presented to it, that the case was
brought, pursued or defended frivolously, unreasonably or without foundation.”
Typically, these Idaho attorney fee statutes would be applicable in this case. See
In re Larry’s Apartment, LLC, 249 F.3d 832, 838 (9th Cir. 2001). However, when an
attorney fee award would be based on the misconduct of counsel in the federal court
litigation itself, the court must rely on federal law rather than state law:
[T]he proper body of law and the one on which parties in federal court can and
should adhere to and rely upon is federal, not state, law. That is not only a
question of protecting the federal courts’ power over their own proceedings,
but also a question of fairness to those who are obliged to conform to federal
standards when in federal court. For example, Federal Rule of Civil Procedure
11 contains prerequisites and protections for parties, who are accused of
violating its strictures, and parties should be able to rely upon those in federal
court proceedings . . . . Moreover, it makes a great deal of sense to have a
single group of sanctioning rules and decisions control behavior of parties in
the federal courts, rather than a farrago of state and federal rules based on
different policies or different views about the best way to implement these
Id. at 839 (citations omitted). Thus, the Court cannot award fees for counsel’s
misconduct in this litigation based on Idaho Code § 12-121 and I.R.C.P. 54(e)(1).1
Even if the Court were to apply Idaho Code § 12-121 and I.R.C.P. 54(e)(1), the Court would not
have awarded attorneys fees to Title One. While it is true that plaintiffs’ counsel should have known that
their claims could not be brought in federal court based upon this Court’s prior decisions, it is equally true
that counsel for Title One did not recognize the jurisdictional defect and failed to raise the issue when it
Memorandum Decision & Order – page 4
Because TitleOne’s motion for attorney fees was based entirely on these state law
provisions, the motion must be denied.
Rule 11 Sanctions
By signing the complaint in this case, plaintiffs’ counsel certified that their claims
“are warranted by existing law or by a nonfrivolous argument for extending, modifying,
or reversing existing law or for establishing new law.” See Rule 11(b)(2). TitleOne
argues that plaintiffs’ counsel knew, or should have known, at the time he filed the
complaint that the statute he relied upon for subject matter jurisdiction – CAFA – did not
apply to this case.
Plaintiffs respond that TitleOne lost the right to rely on Rule 11 by failing to
follow its “safe harbor” provision. Rule 11(c) authorizes the court to award sanctions
“subject to the conditions stated below.” One of those conditions, part of the 1993
amendments to the Rule, states as follows:
[A motion for sanctions] shall be served as provided in Rule 5, but shall not be
filed with or presented to the court unless, within 21 days after service of the
motion (or such other period as the court may prescribe), the challenged paper,
claim, defense, contentions, allegation, or denial is not withdrawn or
See Fed.R.Civ.P. § 11(c)(1)(A). The purpose of the amendments is explained in the
Advisory Committee Notes:
filed its motion to dismiss. This suggests that the jurisdictional bar was not so obvious that failing to
recognize it amounts to frivolous or unreasonable conduct. Moreover, counsel for plaintiffs did the
reasonable thing when they realized the jurisdictional defect, by bringing the matter to the attention of the
Court and opposing counsel, and subsequently seeking to dismiss the action.
Memorandum Decision & Order – page 5
These provisions are intended to provide a type of “safe harbor” against
motions under Rule 11 in that a party will not be subject to sanctions on the
basis of another party's motion unless, after receiving the motion, it refused to
withdraw that position or to acknowledge candidly that it does not currently
have evidence to support a specified allegation. Under the former rule, parties
were sometimes reluctant to abandon a questionable contention lest that be
viewed as evidence of a violation of Rule 11; under the revision, the timely
withdrawal of a contention will protect a party against a motion for sanctions.
See Adv. Comm. Notes, 1993 Amend. Plaintiffs argue that TitleOne failed to serve the
Rule 11 motion on plaintiffs twenty-one days before filing it with the Court and thus
failed to comply with the Rule’s preconditions to seeking attorney fees. TitleOne
responds that the goal of the twenty-one day condition is to avoid needless expenses by
spurring the offending party to withdraw the offensive pleading, a goal that could not be
achieved here because by the time TitleOne discovered the complaint’s flaw, the fees
TitleOne seeks to recover had already been expended.
At first glance, TitleOne’s argument seems persuasive. Under the circumstances
of this case, compliance with the twenty-one day “safe harbor” provision would appear to
be an empty formality.
Nevertheless, the Circuit takes the requirement quite seriously. See Barber v.
Miller, 146 F.3d 707 (9th Cir. 1998). In Barber, the plaintiff filed a complaint containing
clearly wrong jurisdictional assertions, similar to the filing here. Defendant Imageware
immediately discovered the flaws and warned plaintiff that it would seek Rule 11
sanctions unless plaintiff dismissed the complaint. Plaintiff resisted, and Imageware filed
a motion to dismiss. The district court granted the motion and retained jurisdiction to
Memorandum Decision & Order – page 6
consider sanctions. Imageware then filed a Rule 11 motion, that was granted.
The Circuit reversed the grant of Rule 11 sanctions. While recognizing that
Imageware warned the plaintiff about the flaw in the complaint well-before filing the
Rule 11 motion, the Circuit held that “warnings were not motions, however, and the Rule
requires service of a motion.” Id. at 710. The Circuit rejected the district court’s
reasoning that compliance with the 21-day requirement would be futile because the
offending complaint had already been dismissed and the fees expended. The Circuit held
that the purpose of the safe harbor provision was to give plaintiff the opportunity to
withdraw the complaint “and thereby escape sanctions. A motion served after the
complaint had been dismissed did not give [plaintiff] that opportunity.” Id. (emphasis in
original). In support of that conclusion, the Circuit cited the Advisory Committee Notes
to Rule 11: “[A] party cannot delay serving its Rule 11 motion until after conclusion of
the case (or judicial rejection of the offending contention).” Id. at 710-11.
In both this case and Barber, the complaint’s flaw was open and apparent;
plaintiffs’ counsel in both cases did nothing to hide the flaw or deceive the court or
counsel. In Barber, Imageware knew of the flaw immediately but lost its right to rely on
Rule 11 by waiting to file its motion for sanctions until the fees it sought to recoup had
been expended. The only difference between Barber and the present case is that TitleOne
apparently did not know about the complaint’s flaw until its fees had been expended.
Does that make a substantive difference? It does not, under the core reasoning of Barber.
Whether the moving party intentionally waited to file its Rule 11 motion or proceeded in
Memorandum Decision & Order – page 7
ignorance, it incurred its attorney fees and passed by the moment where withdrawal of the
offending pleading could have prevented that expense. At that point, Rule 11's purpose
cannot be achieved.
The Advisory Committee Notes confirm this reading of the Rule. They state that
“[s]ince the purpose of Rule 11 sanctions is to deter rather than to compensate,” any
award of compensation should not include amounts “for services that could have been
avoided by an . . . earlier challenge to the groundless claims or defenses.” See Advisory
Comm. Notes, 1993 Am.
Since Barber was decided, the Circuit continues to hold that compliance with the
21-day period is “mandatory.” Radcliffe v. Rainbow Const. Co., 254 F.3d 772, 789 (9th
Cir. 2001). For all these reasons, the Court will deny the motion for sanctions under Rule
In accordance with the Memorandum Decision set forth above,
NOW THEREFORE IT IS HEREBY ORDERED, that the motion for sanctions
(docket no. 70) is DENIED.
IT IS FURTHER ORDERED, that the motion to strike (docket no. 68) is
IT IS FURTHER ORDERED, that the motion for attorney fees (docket no. 72) is
Because the Court has denied the motion for sanctions, the Court will deem moot the motion to
strike the motion for sanctions. There are also two pending motions to dismiss that are now mooted by
the subsequent filings and the Court will so indicate in the Order portion of this decision.
Memorandum Decision & Order – page 8
IT IS FURTHER ORDERED, that the motions to dismiss (docket nos. 52 & 65)
are DEEMED MOOT.
IT IS FURTHER ORDERED, that pursuant to the Notice of Dismissal (docket no.
69), this action is DISMISSED WITHOUT PREJUDICE and the Clerk is directed to
close this case.
DATED: June 30, 2011
Honorable B. Lynn Winmill
Chief U. S. District Judge
Memorandum Decision & Order – page 9
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