Armed Forces Bank, N.A. v. FSG-4, LLC et al

Filing 41

ORDER Denying 34 Motion for Sanctions. Signed by Judge James C. Mahan on 1/23/2012. (Copies have been distributed pursuant to the NEF - SLR)

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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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ARMED FORCES BANK, N.A.,

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2:11-CV-654 JCM (CWH)

Plaintiff,
v.
FSG-4, LLC., et al.,

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Defendants.

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ORDER

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Presently before the court is plaintiff and counter-defendant Armed Forces Bank, N.A.’s

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(“Armed Forces”) motion for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure.

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(Doc. #34). Defendants and counter-claimants FSG-4, LLC and John A. Ritter (sued both as an

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individual and in his capacity as trustee of the Mustang Trust) have filed a response (doc. #38), to

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which Armed Forces has replied (doc. #39).

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Armed Forces seeks sanctions due to the inclusion of paragraphs 35 and 54 of the

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counterclaim, explaining that the allegations contained in those paragraphs are scandalous and

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counterclaimants should not have included them without evidentiary support.

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By filing a pleading with the court, an attorney “certifies that to the best of the person’s

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knowledge, information and belief, formed after an inquiry reasonable under the circumstances . .

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. the factual contentions have evidentiary support or, if specifically so identified, will likely have

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evidentiary support after a reasonable opportunity for further investigation or discovery.” Fed.

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James C. Mahan
U.S. District Judge

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R. Civ. P. 11(b)(3). “A signature certifies to the court that the signer has read the document, has

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conducted a reasonable inquiry into the facts and the law and is satisfied that the document is

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well grounded in both, and is acting without any improper motive.” Business Guides Inc. v.

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Chromatic Comm’ns Enterps., Inc., 498 U.S. 533, 542-43 (1991).

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Armed Forces complains of the counterclaim’s allegation, based on information and
belief,
that Bank Midwest chose to ignore the deteriorating financial status of the Focus entities
and Mr. Ritter’s numerous proposals to resolve the Loan in order to stall and delay the
foreclosure process so Bank Midwest could mislead regulators as to the condition of the
Loan in order to obtain executive bonuses, participate in the federal Troubled Asset
Relief Program (“TARP”), avoid the regulatory and financial pressures of having to place
additional reserves aside for the Counterclaimants’ troubled Loan, all while speculating
on the commercial real estate market with the hope that Bank Midwest would eventually
obtain an undeserved and wrongful windfall at the Counterclaimants’ expense and to their
detriment.

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See Doc. #20, Counterclaim at ¶¶ 35, 54.
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The court notes that the allegation was based on “information and belief.” While such a
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preface does not grant an attorney free license to make frivolous and baseless allegations without
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a reasonable and competent inquiry, see Townsend v. Holman Consulting Corp., 929 F.2d 1358
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(9th Cir. 1990) (en banc), the preface does signify the signer’s belief that the allegations will
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“likely have evidentiary support after a reasonable opportunity for further investigation and
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discovery.” See Fed. R. Civ. P. 11.
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Counterclaimants state that they “fully anticipate uncovering additional evidence
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throughout the discovery process to bolster these allegations.” See Def.’s Opp., Ex. C. Indeed,
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while discovery has not yet closed, counter-claimants have already uncovered news articles that
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may support the allegations contained in the counterclaim. Furthermore, counterclaimants
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represent that bank representatives had voiced concerns regarding regulatory scrutiny with the
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loan at issue in this case. Id. Moreover, counter-claimants represent that the allegations are
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supported by information gleaned from an expert in the banking industry. Def.’s Mot. at 6:2-4.
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Without passing judgment on whether the allegations do indeed have evidentiary support,
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this court does rule that Armed Forces has failed to establish that the allegations lack any such
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James C. Mahan
U.S. District Judge

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support or that no reasonable inquiry was made into possible evidentiary support.

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Accordingly,

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IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that plaintiff’s motion for

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sanctions (doc. #34) be, and the same hereby is, DENIED.
DATED January 23, 2012.

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UNITED STATES DISTRICT JUDGE
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James C. Mahan
U.S. District Judge

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