Multibank 2009-1 RES-ADC Venture, LLC v. Aizenberg et al
Filing
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ORDER Denying 72 Motion for Sanctions; and Denying 74 Motion for District Judge to Reconsider Order. Signed by Judge James C. Mahan on 12/30/11. (Copies have been distributed pursuant to the NEF - MMM)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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RES-NV TVL, LCC,
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2:10-CV-1084 JCM (GWF)
Plaintiff,
v.
TOWNE VISTAS LLC, et al.,
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Defendants.
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ORDER
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Presently before the court is defendants Fred Lessman and The Fred Lessman 2001 Living
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Trust’s motion for sanctions. (Doc #72). Plaintiff has filed an opposition (doc. #73), to which
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defendants have replied (doc. #75).
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Also before the court is plaintiff’s motion for this court to reconsider its order (doc.
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#71) dismissing this action for lack of diversity jurisdiction. (Doc. #74). Defendants have filed an
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opposition (doc. #76), to which plaintiff has replied (doc. #78).
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Background
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Plaintiff RES-NV TVL, LLC is a limited liability company. Its sole member is the limited
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liability company Multibank 2009-1 RES-ADC Venture, LLC (“Multibank”). Multibank, in turn,
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is comprised of two members: (1) RL RES 2009-1 Investments, LLC (“RL RES”) and (2) the
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Federal Deposit Insurance Corporation (“FDIC”).
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Plaintiff filed this diversity action on July 1, 2010. On September 16, 2011, defendants filed
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a motion to dismiss, arguing that diversity jurisdiction does not exist. The court granted the motion
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James C. Mahan
U.S. District Judge
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to dismiss, finding that because the citizenship of a limited liability company is based upon the
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citizenship of its members, and the FDIC is not a citizen of any state, diversity jurisdiction was
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lacking. As a result of this court’s order dismissing the case, defendants have moved for sanctions
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and plaintiff for reconsideration.
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Discussion
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1.
Motion for Sanctions
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Pursuant to Rule 11 of the Federal Rules of Civil Procedure an attorney represents that all
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“claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous
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argument for extending, modifying, or reversing existing law or for establishing new law. . . .”
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Defendants contend that plaintiff’s jurisdictional allegation in the complaint was knowingly frivolous
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and therefore requests that this court award reasonable attorneys’ fees for the costs in defending this
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action.
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Defendants argue that plaintiff knowingly misrepresented to the court the citizenship of the
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FDIC when it represented in the complaint that the FDIC was a citizen of Delaware. Additionally,
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defendants contend that plaintiff’s suit is frivolous, because in other suits arising in different
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jurisdictions, plaintiff has itself argued that diversity jurisdiction lacks in federal court based on the
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FDIC’s status as a member of Multibank. In rebutting these allegations, plaintiff argues that the
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representation in the complaint regarding the FDIC’s citizenship was an oversight and that it cannot
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be held accountable for legal arguments made by local counsel in different cases in different
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jurisdictions. Multibank is currently engaged in a multitude of lawsuits around the country and
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different attorneys are representing the bank as they see fit, sometimes making arguments that may
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conflict with Multibank’s position in other cases.
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Regardless of the merits of defendants’ accusations, this court finds that plaintiff’s arguments
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regarding jurisdiction were not frivolous. There is no direct precedent on this issue from either the
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Ninth Circuit or the Supreme Court. Moreover, significant policy reasons may exist for adopting
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the position plaintiff urges this court to adopt.
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...
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James C. Mahan
U.S. District Judge
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This court’s dismissal order, relying on case law from the Ninth Circuit, and persuasive
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authority from other jurisdictions, held that federally-chartered corporations are not citizens of any
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particular state for purposes of diversity jurisdiction. See doc. #71, (citing Hancock Financial Corp.
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v. Fed. Savings and Loan Ins. Corp., 492 F.2d 1325, 1329 (9th Cir. 1974); FDIC v. La Rambla
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Shopping Ctr., Inc., 791 F.2d 215, 221 (1st Cir. 1986); FDIC v. Nat’l Surety Corp., 345 F. Supp.
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885, 888 (S.D. Iowa 1972)). While this court was persuaded by defendants’ arguments on the issue,
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it cannot find that the arguments presented by plaintiff seeking an extension or modification of the
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law in this area were devoid of any merit. Indeed, the policy implications raised by plaintiff, and
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statutory construction that it continues to urge this court to adopt, may very well persuade the Ninth
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Circuit that plaintiff’s position should prevail. This court, however, has a duty to apply the law, not
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set matters of public policy.
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As such, the motion for sanctions is denied.
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2.
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Motions for reconsideration “should not be granted, absent highly unusual circumstances.”
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Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000). These circumstances are
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present where “the district court is presented with newly discovered evidence, committed clear error,
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or if there is an intervening change in the controlling law.” Id. Plaintiffs’ motion fails to persuade
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this court that any of these circumstances exist in the present case.
Motion for Reconsideration
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Plaintiff moves this court to reconsider its order dismissing this case for a lack of jurisdiction
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on two grounds. First, plaintiff contends that it is unfair for the court to premise a lack of diversity
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on the FDIC’s status as one of two members of Multibank. Plaintiff recommends that the court
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ignore the FDIC’s role as a member of Multibank, and focus instead on the citizenship of RL RES
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to determine whether plaintiff’s citizenship is diverse from the defendants.
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Second, plaintiff argues that congress has evinced an intent to have all claims litigated by the
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FDIC be heard in federal court by passing the Financial Institutions Reform, Recovery and
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Enforcement Act of 1989 (“FIRREA”). As such, plaintiff contends that this court should find that
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it has jurisdiction to hear this case. Plaintiff also argues that finding a lack of diversity jurisdiction
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James C. Mahan
U.S. District Judge
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is illogical. For example, given that the FDIC could pursue these claims independently in federal
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court under FIRREA, the court should not dismiss the complaint of the FDIC’s subsidiary for lack
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of diversity jurisdiction.
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Ignoring the FDIC’s Stateless Status
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A limited liability company “is a citizen of every state of which its owners/members are
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citizens.” Johnson v. Columbia Properties Anchorage, L.P., 437 F.3d 894, 899 (9th Cir. 2006).
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However, “as federally-chartered corporation, the FDIC is not a citizen of any state, but rather is a
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national citizen only.” Hancock Financial Corp. v. Fed. Sav. & Loan Ins. Corp., 492 F.2d 1325,
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1329 (9th Cir. 1974). Thus, where the FDIC is an owner/member of a limited liability company,
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diversity jurisdiction, pursuant to Johnson, cannot exist; the FDIC is a “national citizen only,”
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thereby destroying diversity jurisdiction. See id.
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Multibank argues that the court should ignore the FDIC’s status as a member of the
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Multibank, and focus instead on the citizenship of Multibank’s other member, RL RES. By doing
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so, Multibank would be construed a citizen of RL RES’s state of citizenship, thereby rendering
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plaintiff and defendants diverse. The cases cited by plaintiff for this proposition are based upon
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findings that in those cases, the limited liability company was a “nominal”party. See Roskind v.
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Emigh, 2007 WL 981725 (D. Nev. April 2, 2007) (LLC’s citizenship not considered for diversity
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purposes because “the real dispute” was between the members of the LLC, who were both diverse
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from one another).
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Plaintiff has not persuaded this court that the FDIC’s role in this litigation is “nominal.”
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Rather, it appears that the FDIC is a majority owner of plaintiff. Ignoring the citizenship of a limited
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liability company’s majority stakeholder is a considerable deviation from the approach taken by the
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Emigh court. There, the two individual members of a limited liability company, Roskind and
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Emight, could not agree on how to run the affairs of the company. Id. at *1. Roskind filed suit
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seeking a judicial dissolution of the limited liability company and a distribution of title pursuant to
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state law. Id. Roskind was a citizen of California and Emigh a citizen of Nevada. Thus, pursuant
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to Johnson, the limited liability company was a citizen of both states. Emigh argued that because
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James C. Mahan
U.S. District Judge
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the limited liability company was named as a defendant, and retained citizenship, at least partly, in
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California, there was a lack of diversity between the company and Roskind. Id.
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The court found that the company was only a nominal party in the litigation. The company
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was included as a party to the litigation solely to enable the ministerial act of according the requested
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relief between the real parties, Roskind and Emigh. Id. at *3. Because both Roskind and Emigh,
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the real parties with an interest in the litigation, were both diverse from one another, the court found
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it appropriate to ignore the citizenship of the limited liability company, which did not have a real
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stake in the outcome of the litigation. Id.
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Here, however, the party that destroys citizenship is a majority stakeholder in the limited
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liability company’s sole member. Plaintiff has not shown that the FDIC has no interest in this
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lawsuit. Rather, the FDIC is a majority stakeholder in plaintiff’s parent company. As such, it is
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likely that the FDIC has a considerable interest in the outcome of the litigation and is a real party to
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the dispute. Therefore, the facts of the instant case are materially distinguishable from those
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presented in Emigh, and this court finds it improper to ignore the Ninth Circuit’s clear edict in
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Johnson by disregarding the citizenship of the FDIC.
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2.
FIRREA Establishing a Congressional Intent that all Claims Involving the FDIC
be heard in Federal Court
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This court is similarly unpersuaded by plaintiff’s arguments relating to FIRREA. The
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applicable language in that statute illustrates congress’s intent to create federal question jurisdiction
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in cases where the FDIC is a party. See 12 U.S.C. § 1819(b)(2)(A) (“all suits of a civil nature at
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common law or in equity to which the [FDIC] in any capacity, is a party shall be deemed to arise
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under the laws of the United States.”).
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Here, however, the question is whether diversity jurisdiction exists for a limited liability
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company that is owned by another limited liability company that the FDIC has a majority stake in.
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As such, this court cannot find, based upon FIRREA, that congress intended to create diversity
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jurisdiction in such a scenario. That statute directly speaks to federal question jurisdiction, but is
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silent as to the facts of the instant case. Further, whether a conflict exists between FIRREA’s
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U.S. District Judge
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creation of federal question jurisdiction and the diversity requirements for limited liability companies
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in this context is not controlling. Congress created federal question jurisdiction for FDIC claims,
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but did not alter the diversity statute to ensure FDIC affiliates are not prejudiced by an upstream
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affiliation with the FDIC.
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As explained previously, this court is guided by current precedent and applies the law as it
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interprets it. Overturning precedent and setting policy falls within the sound discretion of the Ninth
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Circuit. The majority of plaintiff’s arguments are better addressed to that body. Pursuant to
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Johnson, this court must consider the citizenship of a limited liability company’s members. See
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Johnson, 437 F.3d at 899. Doing so here, it is apparent that the FDIC is a member of Multibank;
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thus diversity jurisdiction is destroyed. See Hancock, 492 F.2d at 1329. Plaintiff has not convinced
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this court that it committed clear error or that the other grounds for reconsideration exist. See Kona
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Enters., 229 F.3d at 890. Therefore, the motion for reconsideration is denied.
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Accordingly,
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IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that defendants’ motion for
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sanctions (doc. #72) be, and the same hereby is, DENIED.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that plaintiff’s motion for
reconsideration (doc. #74) be, and the same hereby is, DENIED.
DATED December 30, 2011.
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UNITED STATES DISTRICT JUDGE
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James C. Mahan
U.S. District Judge
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