Bouchard Transportation Company, Inc. et al v. VT Halter Marine, Inc.

Filing 128

ORDER DENYING 14 Motion for Sanctions Pursuant to Fed. R. Civ. P. 11. Signed by Judge Nannette Jolivette Brown on 2/1/2017. (Reference: All Cases)(mmv)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
BOUCHARD TRANSPORTATION
COMPANY, INC., et al.

CIVIL ACTION

VERSUS

NO. 16-11264
c/w 16-12823

VT HALTER MARINE, INC.

SECTION: “G” (2)

ORDER
In this litigation, Plaintiffs Bouchard Transportation Co., Inc., M/V Donna J. Bouchard
Corp., B. No. 272 Corp., M/V Kim M. Bouchard Corp., and B. No. 270 Corp. (collectively,
“Plaintiffs”) allege that Defendant VT Halter Marine, Inc. (“Defendant”) breached a contract
between the parties when it installed “re-conditioned and malfunctioning valves,” instead of new
valves, onboard two vessels.1 Plaintiffs further allege that Defendant purchased the faulty valves
from Cajun Process Solutions, LLC and Flowline Valve and Controls, LLC.2 Before the Court is
Defendant’s “Motion for Sanctions Pursuant to Fed. R. Civ. P. 11.”3 Defendant contends that the
current suit is part of a pattern of frivolous lawsuits filed by Plaintiffs and Plaintiffs’ counsel Marc
Hebert.4 Having considered the motion, the memoranda in support and in opposition, the record,
and the applicable law, the Court will deny the motion.

1

Rec. Doc. 33 at 3.

2

Id.

3

Rec. Doc. 14.

4

Id. at 1.

1

I. Background
A.

Factual Background
In their complaint, Plaintiffs allege that they entered into a contract with Defendant VT

Halter on February 13, 2013, requiring Defendant to build two tug and barge units in exchange for
monetary compensation.5 Plaintiffs allege that Defendant breached the contract by installing
reconditioned and faulty valves on each barge even though the contract required that new valves
be installed in the barges.6 Specifically, Plaintiffs allege that in June of 2016, they experienced
problems on both barges caused by the faulty valves.7 As soon as the problems began, Plaintiffs
allege that they notified Defendant and gave it an opportunity to repair the problem, but according
to Plaintiffs, it failed to do so.8 Plaintiffs assert that as a result of the defective conditions caused
by the faulty valves, both barges have been rendered unsuitable for their intended use, and
Plaintiffs claim over $20 million in damages.9
B.

Procedural Background
Plaintiffs filed a complaint in this matter on June 22, 2016.10 On July 6, 2016, the Court

granted Plaintiffs leave to amend their complaint to expressly state the citizenship of Defendant.11
On July 19, 2016, Plaintiffs submitted a motion to the magistrate judge for leave to file a third

5

Rec. Doc. 33 at 3.

6

Id.

7

Id.

8

Id. at 4.

9

Id.

10

Rec. Doc. 1.

11

Rec. Doc. 8.

2

amended and supplemental complaint for declaratory relief regarding the issue of arbitrability and
damages,12 which the magistrate judge granted on August 3, 2016.13 On July 24, 2016, Defendant
filed a motion to compel arbitration,14 which the Court granted on October 20, 2016.15 On
November 23, 2016, the Court granted Flow Line Valve and Controls, LLC’s16 and Defendant
Cajun Process Solutions, LLC’s17 unopposed motions to consolidate the instant suit with a related
action brought by Defendant claiming that the valves at issue were defective.18
On July 16, 2016, Defendant filed the instant motion for sanctions.19 On July 26, 2016,
Plaintiffs filed an opposition to the motion for sanctions.20 With leave of the Court, Defendant
filed a reply on August 2, 2016.21 On August 3, 2016, Plaintiffs filed a sur-reply with leave of the
Court in further opposition to the motion.22

12

Rec. Doc. 19.

13

Rec. Doc. 32.

14

Rec. Doc. 24.

15

Rec. Doc. 74.

16

Rec. Doc. 75.

17

Rec. Doc. 76.

18

Rec. Doc. 77.

19

Rec. Doc. 14.

20

Rec. Doc. 22.

21

Rec. Doc. 28.

22

Rec. Docs. 36.

3

II. Parties’ Arguments
A.

Defendant’s Arguments in Support of Sanctions
In its motion, Defendant argues that the Court should order sanctions against Plaintiffs,

because Plaintiffs brought a prior action and the instant action “with full knowledge that the subject
contract contains an arbitration agreement that divests the Court of jurisdiction over disputes
relating to the Contract.”23 According to Defendant, responding to Plaintiffs’ “frivolous court
filings” has been costly.24 Defendant contends that Plaintiffs filed a lawsuit prior to the instant
litigation which they voluntarily dismissed after Defendant filed a motion to compel arbitration.25
Therefore, Defendant argues, Plaintiffs should have known that they were forced to arbitrate any
breach of the contract and should not have filed the instant cause of action.26 Defendant contends
that “an improper purpose may be inferred from the filing of frivolous papers” and that Plaintiffs’
“bullying tactics” are exactly the types of abuses Rule 11(b)(1) was intended to prevent.27
B.

Plaintiffs’ Arguments in Opposition
In opposition, Plaintiffs argue that sanctions are not warranted in this case, because

Plaintiffs’ claims and request for declaratory judgment are supported by the contract between the
parties, applicable case law, and the facts of the case.28 Plaintiffs assert that the prior lawsuit filed
against Defendant is irrelevant to this litigation because the parties reached a settlement in that

23

Rec. Doc. 14-1 at 1.

24

Id. at 2.

25

Id. at 5.

26

Id.

27

Id. at 6.

28

Rec. Doc. 22 at 6.

4

case and the issue of arbitrability was never adjudicated.29 Plaintiffs further assert that the
arbitration clause may be limited in its application to technical disputes but that Defendant has
filed a motion for sanctions without even acknowledging this issue.30 Plaintiffs request that
Defendant’s motion be denied and that the Court award costs to Plaintiffs incurred in opposing
Defendant’s motion for sanctions.31
C.

Defendant’s Reply in Further Support of Sanctions
In its reply, Defendant argues that Plaintiffs filed frivolous suits and failed to make a

sufficient inquiry into both the facts and the law before filing the instant litigation.32 Defendant
further asserts that Plaintiffs intentionally misrepresent existing law, which according to
Defendant, instructs that where parties have incorporated the AAA rules into their arbitration
agreement, questions of arbitrability are to be submitted to arbitration.33 Defendant claims that
Plaintiffs were not acting in good faith in filing their complaint, because the Fifth Circuit and
courts of “many other circuits” have confirmed that the general rule that courts decide arbitrability
does not apply where, as here, the parties “clearly and unmistakably provide otherwise.”34

29

Id. at 11.

30

Id. at 13.

31

Id.

32

Rec. Doc. 28 at 7 (citing Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 875 (5th Cir. 1988)).

33

Id.

34

Id. at 8–9 (citing AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)).

5

D.

Plaintiffs’ Sur-Reply in Further Opposition to Sanctions
In their sur-reply in further opposition to sanctions, Plaintiffs argue that the instant dispute

is not arbitrable because the express condition precedent to arbitration was not met.35 Plaintiffs
assert that they gave Defendant timely notice of the technical dispute but that neither party
appointed an ABS surveyor as contemplated by the contract at issue.36 According to Plaintiffs, the
issue of arbitrability was never reached in the first lawsuit filed against Defendant.37 Moreover,
Plaintiffs contend that they have the right, and Plaintiffs’ counsel the obligation, to raise the issue
of the enforceability of the arbitration clause in this proceeding.38 Finally, Plaintiffs argue that
Defendant does not cite to any provision in the contract at issue where the parties clearly and
unmistakably provide that arbitrability should be decided by the arbitrator.39 Therefore, Plaintiffs
contend that the general rule that courts decide arbitrability remains in effect.40 Plaintiffs argue
that Defendant may disagree with Plaintiffs’ approach to its claim but that such disagreement does
not constitute a basis for the imposition of sanctions.41

35

Rec. Doc. 36 at 2.

36

Id. at 3.

37

Id.

38

Id.

39

Id. at 4.

40

Id. at 5

41

Id.

6

III. Law and Analysis
A.

Legal Standard for Sanctions under Federal Rule of Civil Procedure 11
As the Fifth Circuit has held, Federal Rule of Civil Procedure 11(b) provides in pertinent

part:
By presenting to the court (whether by signing, filing, submitting, or later
advocating) a pleading, written motion, or other paper, an attorney . . . is certifying
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 or
to cause unnecessary delay or needless increase in the cost of litigation;
[and]
(2) the claims, defenses, and other legal contentions therein are warranted
by existing law or by a nonfrivolous argument for the extension,
modification, or reversal of existing law or the establishment of new
law . . . .42
Rule 11 continues that, “[i]f, 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.”43 “Subparts
(b)(1) and (2) of Rule 11 provide independent bases for sanctions.”44 Therefore, under Rule 11,
each of the two obligations mentioned above must be satisfied; “violation of either justifies
sanctions.”45 Stated otherwise, an attorney “violates Rule 11 if he fails to conduct a reasonable

42

Whitehead v. Food Max of Mississippi, Inc., 332 F.3d 796, 802 (5th Cir. 2003) (en banc) (emphasis

omitted).
43

Fed. R. Civ. P. 11(c)(1).

44

Whitehead, 332 F.3d at 802.

45

Id.

7

inquiry into the law and facts underlying his motion, or if he makes a motion to delay, harass or
increase the costs of litigation.”46
“In determining compliance vel non with each obligation, the standard under which an
attorney is measured is an objective, not subjective, standard of reasonableness under the
circumstances.”47 “An attorney’s good faith is . . . [not] enough to protect him from Rule 11
sanctions.”48 Finally, “[c]ompliance with an attorney’s affirmative duties”—whether it be
establishing a sufficient legal basis or eschewing an improper motive—“is measured as of the time
that the document is signed.”49
“In deciding whether a reasonable inquiry into the law has been made a district court may
consider how much time the attorney had to prepare the document; whether the document contains
a plausible view of the law; whether the document is filed by an attorney or a pro se litigant; and
the complexity of the legal and factual issues in question.”50
Likewise, in deciding whether a filing was made for an improper purpose, a court is to
determine whether “it is objectively ascertainable that an attorney submitted a paper to the court
for an improper purpose.”51 Because of the objective inquiry, a district court can read an improper

46

Walker v. City of Bogalusa, 168 F.3d 237, 241 (5th Cir. 1999).

47

Whitehead, 332 F.3d at 802 (citations and internal quotation marks omitted); see also Thomas v. Capital
Sec. Servs., Inc., 812 F.2d 984, 988 (5th Cir. 1987) (“Rule 11 compliance is measured generally by an
objective standard of attorney performance.”).

48

Childs v. State Farm Mut. Auto. Ins. Co., 29 F.3d 1018, 1024 (5th Cir. 1994).

49

Id.

50

Thomas, 812 F.2d at 988.

51

F.D.I.C. v. Maxxam, Inc., 523 F.3d 566, 580 (5th Cir. 2008).

8

motive into a document well-grounded in fact and law under exceptional circumstances.52 The key
is whether “the improper purpose is objectively ascertainable.”53 A district court’s decision
regarding Rule 11 sanctions is reviewed for abuse of discretion.54
B.

Whether Sanctions are Warranted against Plaintiffs for Violating Rule 11
In its motion, Defendant argues that sanctions are warranted against Plaintiffs and their

counsel, because Plaintiffs claims are frivolous and are filed for an improper purpose.55 The Court
will address Defendant’s arguments in turn.
1.

Whether Plaintiffs’ Claims are Sufficiently Grounded in Law

Plaintiffs allege a breach of contract claim against Defendant and seek declaratory
judgment that the dispute at issue is “a technical dispute” as defined by the contract and is therefore
exempt from arbitration under the plain language of the contract.56 According to Defendant,
Plaintiffs’ suit is frivolous, because Plaintiffs knew or should have known that the litigation was
precluded by the parties’ agreement to arbitrate any contractual disputes.57 Defendant further
contends that Plaintiffs should have sought resolution of any contractual dispute through a private
arbitration action.58 Plaintiffs respond that the plain language of the contract suggests that the
arbitration provision does not extend to technical disputes and that under New York law, which

52

Id.

53

Id. at 580–81.

54

See Thomas v. Capital Sec. Servs., Inc., 836 F.3d 866, 872 (5th Cir. 1988).

55

See Rec. Doc. 14 at 1.

56

Rec. Doc. 33 at 7.

57

See Rec. Doc. 14-1 at 6.

58

Id.

9

Plaintiff contends applies to the contract, district courts and not arbitrators decide whether the
parties agreed to arbitrate.59 Therefore, Plaintiffs argue, the instant suit is sufficiently grounded in
law, and sanctions are not appropriate.60
Here, the parties’ February 13, 2013, contract contains the following arbitration provision:
ARTICLE XVII - LAW APPLICABLE; DISPUTES; VENUE:
17.0 This Contract and any disputes arising hereunder shall be governed by the
Laws of the State of New York, U.S.A. In the event of any dispute arising in
connection with this Contract, the parties shall first attempt to amicably resolve the
dispute through negotiations among the parties' respective executive level
personnel.
17.1 With regard to any disputes of a technical nature ("Technical Disputes")
regarding whether any part of the Work has been completed in accordance with the
applicable rules or regulations the parties agree that within five (5) days of such
dispute, the parties will jointly appoint an ABS surveyor to decide the matter.
17.2 Failing amicable resolution of disputes other than Technical Disputes, or in
the event that the ABS surveyor is unable to resolve the matter, the parties shall
submit the matter in dispute to binding arbitration in the United States of America
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association.61
Plaintiffs argue that the arbitration clause does not apply to the instant dispute, because
neither party ever appointed an ABS surveyor within five days of the dispute to decide the matter.62
The “intent of the arbitration provision” in the contract does not apply to technical disputes like
this one, Plaintiffs assert, “unless the condition precedent of the joint appointment of an ABS

59

Rec. Doc. 22 at 6.

60

Id. at 13.

61

See Rec. Doc. 33 at 5; Rec. Doc. 24-1 at 5.

62

See Rec. Doc. 33 at 4.

10

surveyor by both parties was met.”63 Plaintiffs further contend that, under federal and New York
law, questions of arbitrability are for the Court to decide, not the arbitrator.64 Defendant VT Halter
contends that technical disputes fall within the broad scope of the valid arbitration agreement
between the parties, even if no ABS surveyor was ever appointed.65 Defendant further argues that
because the parties incorporated the AAA rules, the determination of arbitrability must be left to
the arbitration panel, not the Court.66
On October 20, 2016, the Court granted Defendant’s motion to compel arbitration and
determined that Plaintiffs had not met their burden to demonstrate that the parties did not intend
to arbitrate the underlying contractual dispute at issue in this litigation.67 The Court disagreed with
Plaintiffs’ assertion that the hiring of an ABS surveyor within five days of a dispute acts as a
condition precedent to arbitration and determined that “a more plausible reading of the plain
language of the contract is that failing resolution of a technical dispute by an ABS surveyor, the
parties are to submit to binding arbitration.”68 Although the Court ultimately disagreed with
Plaintiff’s interpretation of the contract at issue, it nevertheless appears that Plaintiff’s complaint
was sufficiently grounded in law and fact.

63

Rec. Doc. 39 at 2.

64

Id. at 7 (citing Smith Barney Shearson, Inc. v. Sacharow, 689 N.E.2d 884 (N.Y. 1997); Nationwide Gen.
Ins. Co. v. Inv’rs Ins. Co., 332 N.E.2d 333 (N.Y. 1975); Legislature of Cty. of Rensselaer v. Allen, 353 N.Y.S.2d 554
(App. Div. 1974)).
65

Rec. Doc. 24-1 at 2.

66
Id. at 8 (citing AAA Rule 7(a), which states that “the arbitrator shall have the power to rule on his or her
own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration
agreement.”)
67

Rec. Doc. 74 at 26.

68

Id.

11

To overcome the presumption of arbitrability of a dispute, the Fifth Circuit has held that a
party must present clear evidence that the parties did not intend a claim to be arbitrable.69 Here, it
appears that Plaintiffs conducted a reasonable inquiry into the relevant law and facts and attempted
to present clear evidence that the parties did not intend the claim underlying the contractual dispute
to be arbitrable.70 The Court ultimately found Plaintiffs’ evidence unavailing. However, it cannot
be said that their interpretation of the contract at issue and Plaintiff’s request for declaratory
judgment were so misguided or frivolous as to support sanctions.71 Thus, Defendants have failed
to show that sanctions are warranted against Plaintiffs for bringing this litigation against
Defendants.
2.

Whether Plaintiffs Brought the Action for an Improper Purpose
Even though the Court has found that Plaintiffs’ complaint was sufficiently grounded in

law, Plaintiffs can still be sanctioned if they filed this action for an improper purpose.72 Despite
Defendant’s assertions to the contrary, there is no objective evidence that Plaintiffs filed this action
for an improper purpose. Defendant does not dispute that the issue of arbitrability was not

69

Harvey v. Joyce, 199 F.3d 790, 793 (5th Cir. 2000).

70

See Walker v. City of Bogalusa, 168 F.3d 237, 241 (5th Cir. 1999) (holding that Rule 11 is violated when
an attorney fails to conduct a reasonable inquiry into the law and facts underlying his motion, or if he makes a motion
to delay, harass or increase the costs of litigation).
71
See Smith v. Our Lady of the Lake Hosp., Inc., 960 F.2d 439, 444 (5th Cir. 1992) (“To comply with his
duties under rule 11, an attorney need not provide an absolute guarantee of the correctness of the legal theory advanced
in the paper he files.”). See also Snow Ingredients, Inc. v. SnoWizard, Inc., No. 12-1412, 2014 WL 1329804, at *10
(E.D. La. March 28, 2014) (Brown, J.) (finding that plaintiff’s RICO claims were not “so misguided as to support
sanctions,” even if ultimately defendant’s alleged acts did not support a violation of RICO).
72

F.D.I.C. v. Maxxam, Inc., 523 F.3d 566, 577 (5th Cir. 2008) (“[C]ourts may in rare circumstances sanction
parties for pleadings . . . that, although having plausible legal theories based in fact, have an underlying improper
purpose.”).

12

adjudicated in the prior lawsuit brought by Plaintiffs against Defendant.73 Rather, Defendant
argues that the motion to compel arbitration that it filed in the first suit should have made Plaintiffs
aware that the claims set forth in Plaintiffs’ instant complaint were matters to be arbitrated, not
litigated.74 Defendant further argues that Plaintiffs’ third amended complaint, which added a claim
for declaratory relief regarding the issue of arbitrability, was filed in bad faith to “justify and
maintain” their “abusive litigation.”75
However, because Defendant has not presented objective evidence that Plaintiffs filed the
instant litigation for an improper purpose, the Court may not infer bad faith simply because
Plaintiffs took a view of the contractual language at issue that differs from that of Defendant. Put
another way, Defendant has failed to demonstrate that this is one of the “exceptional cases . . .
where the improper purpose is objectively ascertainable” and the Court may therefore read an
ulterior motive into a complaint that is sufficiently grounded in law and fact.76 The objective
evidence here is insufficient to support a finding that Plaintiffs filed the instant litigation for an
improper purpose.77 Accordingly, Defendants’ motion for sanctions on this ground must likewise
fail.

73

See Rec. Doc. 28 at 4.

74

Id.

75

Id.

76

See Maxxam, Inc., 523 F.3d at 580 (emphasis in original) (internal citation omitted).

77

See id. See also Snow Ingredients, 2014 WL 1329804, at *10 (finding no improper purpose where
defendant failed to provide objective evidence of improper motive in filing suit).

13

V. Conclusion
The Court finds that Plaintiffs’ complaint is sufficiently grounded in law and fact78 and that
the objective evidence is insufficient to support a finding that Plaintiffs filed the instant litigation
for an improper purpose.79 Therefore, the Court finds that sanctions are not warranted.
Accordingly,
IT IS HEREBY ORDERED that Defendant’s “Motion for Sanctions Pursuant to Fed. R.
Civ. P. 11”80 is DENIED.
NEW ORLEANS, LOUISIANA, this ________ day of February, 2017.
1st
____________________________________
NANNETTE JOLIVETTE BROWN
UNITED STATES DISTRICT JUDGE

78

See Fed. R. Civ. P. 11(b)(2); Walker v. City of Bogalusa, 168 F.3d 237, 241 (5th Cir. 1999).

79

See Fed. R. Civ. P. 11(b)(1); Walker, 168 F.3d at 241 (5th Cir. 1999).

80

Rec. Doc. 14.

14