Paws Up Ranch, LLC et al v. Martin

Filing 58

ORDER granting Defendant's 14 Motion for Attorneys Fees. Plaintiffs are ordered to pay $10,00.00 to Defendant for attorneys' fees incurred as a result of the Emergency Motion to Remand to State Court (ECF No. 5). Signed by Judge Richard F. Boulware, II on 9/30/2019. (Copies have been distributed pursuant to the NEF - BEL)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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PAWS UP RANCH, LLC et al,

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Plaintiffs,

Case No. 2:18-cv-01101-RFB-EJY
ORDER

v.
MARTIN,

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Defendants.

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I.

INTRODUCTION

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Before the Court is Defendant’s Motion for Attorneys’ Fees. ECF No. 14.

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II.

PROCEDURAL BACKGROUND

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Defendant removed this action to federal court on June 21, 2018. ECF No. 1. On June 27,

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2018, Plaintiffs filed an Emergency Motion to Remand to State Court, ECF No. 5, and Defendant

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responded on July 11, 2018, ECF No. 10. The Emergency Motion was withdrawn on July 18,

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2018, ECF No. 12, and Defendant filed a Motion for Attorneys’ Fees on July 24, 2018, ECF No.

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14. Plaintiffs responded on August 7, 2018, ECF No. 15, and Defendant replied on August 14,

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2018, ECF No. 16. A hearing was held on this motion and others on January 7, 2019. ECF No. 40.

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III.

FACTUAL BACKGROUND

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Defendant, who is a citizen of Montana, removed this petition to federal court on the basis

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of diversity jurisdiction, asserting “upon information and belief” that Paws Up Ranch, LLC (“Paws

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Up”) is a Nevada company because it’s one member/officer is QZM, Inc., a Nevada corporation,

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and that Camel, LLC (“Camel”) is a Wyoming limited liability company, and that the Wyoming

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Secretary of State indicates that Camel is a citizen of Wyoming and Nevada. ECF No. 1 at 2.

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Plaintiffs asserted in an Emergency Motion to Remand that both Paws Up and Camel are Montana

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citizens. ECF No. 5 at 2. Specifically, they stated that Paws Up is a Nevada company with a single

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member, Monroe Capital Partners, L.L.C. (“MCP”), which transferred 99% of its interests in Paws

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Up to Nadine Lipson. Id. at 3. Further, MCP also transferred 99% of its interests in Camel to

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Lipson. Because Lipson is a natural person who “has called Montana her home for more than 20

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years and has no present intention of relocating to another state,” id. at 3, Plaintiffs asserted that

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there was no basis for diversity jurisdiction and the case was improperly removed, id. at 4.

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Plaintiffs attached Lipson’s signed affidavit to their motion, stating she is a Montana resident. Ex.

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1 at 2, ECF No. 5-2. Plaintiffs requested attorneys’ fees pursuant to 28 U.S.C. § 1447(c). Id. at 8.

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In response to the Emergency Motion, Defendant asserted that Lipson’s Nevada residency

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was clear; that Lipson had held herself out in previous actions as a Nevada resident, that she was

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registered to vote in Nevada along with her husband, who is the owner or manager of several

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Nevada businesses, that Lipson’s businesses are run out of Las Vegas, and that she lists Nevada

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property as her residence and has maintained a residence in Las Vegas for nearly twenty years.

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ECF No. 10 at 1-3. Defendant further asserted that he had a good faith basis for removal and that

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Plaintiffs failed to meet and confer in good faith before filing the Emergency Motion. Id. at 3-6.

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Finally, Defendant listed several public records, including court filings and affidavits by Lipson

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under oath, that indicate that Lipson herself has asserted she is a citizen of the State of Nevada. Id.

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at 6-13.

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Plaintiffs withdrew their Emergency Motion one week after Defendant’s response, stating

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that the Emergency Motion was filed “based on facts in their possession at the time” and that

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Plaintiffs were unaware of the facts raised in Defendant’s response. ECF No. 12 at 2-3.

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Defendant then filed the instant Motion for Attorneys’ Fees, asserting, inter alia, that the

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Emergency Motion was improper and necessitated that Defendant be reimbursed for the time spent

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in response.

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IV.

LEGAL STANDARD

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A. Equitable Power to Award Attorneys’ Fees

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Under the “American rule,” attorney's fees may not be awarded absent statutory or

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contractual authorization, or a finding of bad faith. Alyeska Pipeline Serv. Co. v. Wilderness Soc.,

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421 U.S. 240, 257 (1975). “[F]ederal courts, in the exercise of their equitable powers, may award

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attorneys' fees when the interests of justice so require. Indeed, the power to award such fees ‘is

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part of the original authority of the chancellor to do equity in a particular situation,’ and federal

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courts do not hesitate to exercise this inherent equitable power whenever ‘overriding

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considerations indicate the need for such a recovery.’” Hall v. Cole, 412 U.S. 1, 4-5 (1973)

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(citations omitted).

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“Thus, it is unquestioned that a federal court may award counsel fees to a successful party

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when his opponent has acted ‘in bad faith, vexatiously, wantonly, or for oppressive reasons.’ In

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this class of cases, the underlying rationale of ‘fee shifting’ is, of course, punitive, and the essential

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element in triggering the award of fees is therefore the existence of ‘bad faith’ on the part of the

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unsuccessful litigant.” Id. at 5 (citations omitted). “The imposition of sanctions in this instance

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transcends a court's equitable power concerning relations between the parties and reaches a court's

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inherent power to police itself, thus serving the dual purpose of “vindicat[ing] judicial authority

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without resort to the more drastic sanctions available for contempt of court and mak[ing] the

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prevailing party whole for expenses caused by his opponent's obstinacy.” Chambers v. NASCO,

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Inc., 501 U.S. 32, 46 (1991) (citations omitted).

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“A court must, of course, exercise caution in invoking its inherent power, and it must

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comply with the mandates of due process, both in determining that the requisite bad faith exists

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and in assessing fees. Furthermore, when there is bad-faith conduct in the course of litigation that

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could be adequately sanctioned under the [Federal Rules of Civil Procedure], the court ordinarily

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should rely on the Rules rather than the inherent power. But if in the informed discretion of the

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court, neither the statute nor the Rules are up to the task, the court may safely rely on its inherent

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power.” Id. at 50.

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B. Rule 11

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Federal Rule of Civil Procedure 11(c) permits a party to move for sanctions if an opposing

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party has violated the requirements for representations to the court outlined in section 11(b).

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Section 11(b) states that “By presenting to the court a pleading, written motion, or other paper—

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whether by signing, filing, submitting, or later advocating it—an attorney or unrepresented party

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certifies that to the best of the person’s knowledge, information, and belief, formed after an inquiry

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reasonable under the circumstances:

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(1) it is not being presented for any improper purpose, such as to harass, cause unnecessary
delay, or needlessly increase the cost of litigation;

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(2) the claims, defenses, and other legal contentions are warranted by existing law or by a

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nonfrivolous argument for extending, modifying, or reversing existing law or for

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establishing new law;

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(3) the factual contentions have evidentiary support or, if specifically so identified, will

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likely have evidentiary support after a reasonable opportunity for further investigation

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or discovery; and

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(4) the denials of factual contentions are warranted on the evidence or, if specifically so
identified, are reasonably based on belief or a lack of information.

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

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Section 11(c)(2) states that a motion for sanctions based on a failure to adhere to 11(b)

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“must not be filed or be presented to the court if the challenged paper, claim, defense, contention,

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or denial is withdrawn or appropriately corrected within 21 days after service or within another

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time the court sets.” Section 11(c)(3) also permits a court on its own initiative to order a party “to

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show cause why conduct specifically described in its order has not violated Rule 11(b).” Sanctions

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imposed under 11(c) may include “an order directing payment to the movant of part or all of the

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reasonable attorney’s fees and other expenses directly resulting from the violation,” subject to

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some limitations. See Fed. R. Civ. P. 11(c)(5).

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V.

DISCUSSION

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Defendant makes several arguments attacking the legitimacy of Plaintiffs’ Emergency

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Motion to Remand. First, Defendant argues that the motion was procedurally improper because

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Plaintiffs failed to meet and confer in accordance with Local Rule 7-4(b), which requires either a

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face-to-face meeting, telephonic conference, or video conference, and which is not satisfied by

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written, electronic, or voice-mail communications. ECF No. 14 at 15; see also D. Nev. Civ. R. IA

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1-3(f). Second, Defendant argues that the allegations in the motion itself were frivolous and lacked

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evidentiary support, and that the motion was filed for an improper purpose. Defendant specifically

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asserts that Plaintiffs failed their “ethical and legal obligation to form a reasonable inquiry under

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the circumstances” before filing the Emergency Motion and that in filing this motion, Plaintiffs

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were “certifying that the allegations and other factual contentions have evidentiary support.” Id. at

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16. The mere fact that Plaintiffs’ counsel was unaware of the contradictions in their motion does

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not excuse the fact that Plaintiffs themselves were aware of the information. Id. Defendant asserts

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that because of these failures, Defendant incurred $20,656 in reasonable and appropriate attorneys’

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fees.

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Plaintiffs counter that they did indeed satisfy the meet-and-confer requirement, by

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exchanging multiple emails with Defendant. ECF No. 15 at 11. They assert that during these

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exchanges Defendant failed to supply them facts to support his assertion that Plaintiffs were

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Nevada citizens, id. at 12-13, and that after Defendant completed research to oppose the

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Emergency Motion, he did not share the newly discovered jurisdictional information, id. at 13.

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Indeed, Plaintiffs contend that it was Defendant’s “insufficient removal petition” coupled with this

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failure to meet and confer in good faith that resulted in the necessity of extra work for both parties.

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Id. at 13-16. Additionally, Plaintiffs argue that substantively, the Emergency Motion had merit

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based on the facts, because it relied on Nadine Lipson’s declaration that she was a citizen of

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Montana and that Lipson herself was not to be expected to know the legal requirements pertaining

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to domicile under 28 U.S.C. § 1332. Id. at 9-10. Furthermore, Plaintiffs assert that even if counsel

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had been aware of Lipson’s 2013 affidavit in which she states that she considers herself to be a

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citizen of the State of Nevada, a person’s domicile may change over time and the Court in that

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action did not rely on the affidavit and remanded the case. Id. at 10-11. Finally, Plaintiffs argue

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that the instant motion was made to disparage Plaintiffs in the eyes of the Court, id. at 16, and that

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there is no legal basis for an award of attorneys’ fees because 28 U.S.C. § 1447(c) and Rule 11 are

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inapplicable, and Plaintiffs have not acted in bad faith, id. at 17-20.

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In reply, Defendant asserts that he conducted a reasonable inquiry in accordance with law

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before filing the Removal Petition, that Plaintiffs refused to discuss in good faith the jurisdictional

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dispute before filing the Emergency Motion, that Defendant “timely and candidly” disclosed all

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information in his possession at the time, and did not discover Lipson’s contradictory statements

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until after the Emergency Motion was filed, and that Plaintiffs’ counsel’s ignorance does not

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relieve Plaintiffs of their duty of candor to the Court. Defendant asserts that the facts make plain

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that the Plaintiffs engaged in bad faith, and that the Court therefore has the authority to award

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attorneys’ fees.

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A. Bad Faith

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The Court does not find that Plaintiffs have engaged in bad faith, and therefore declines to

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issue sanctions pursuant to its equitable power to do so under such circumstances. While it is

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undoubtedly troubling that Nadine Lipson represented to this Court in a signed affidavit that she

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has “lived in and called Montana [her] home for more than 20 years,” the evidence does not

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unequivocally support a finding that Lipson intentionally lied in an effort to avoid removal. It may

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be true that Lipson considers Montana her home as a practical matter, but that her domicile for the

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purposes of diversity jurisdiction is in the State of Nevada. Therefore, in the absence of bad faith,

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the Court finds no basis for awarding attorneys’ fees pursuant to its powers in equity.

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B. Rule 11

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The analysis under Rule 11, however, does not require the Court to make a finding of bad

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faith. “[W]hile the narrow exceptions to the American Rule effectively limit a court's inherent

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power to impose attorney's fees as a sanction to cases in which a litigant has engaged in bad-faith

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conduct or willful disobedience of a court's orders, many of the other mechanisms permit a court

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to impose attorney's fees as a sanction for conduct which merely fails to meet a reasonableness

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standard. Rule 11, for example, imposes an objective standard of reasonable inquiry which does

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not mandate a finding of bad faith.” Chambers, 501 U.S. at 47.

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The Court finds this record to be sufficient to award attorneys’ fees. While the Court notes

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that Plaintiffs withdrew their Emergency Motion within twenty-one days of its initial filing in

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accordance with the “safe harbor” provision of section 11(c)(2), Rule 11(c)(3) does allow the Court

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itself to order a party to show cause why conduct has not violated Rule 11(b). The Court finds that

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the substance of Rule 11(c)(3)’s requirement that the Court “order” a party to show cause has been

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met here. While the Court itself did not explicitly issue a separate order to show cause, the instant

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Motion for Attorneys’ Fees “specifically described” the conduct in question, and, importantly, the

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Court discussed its concerns with the parties when ordering the production of certain information

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from Plaintiffs regarding the motions. Plaintiffs were therefore aware of the Court’s specific

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concerns and were granted ample opportunity to explain why that conduct did not warrant sanction

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in the form of attorneys’ fees, both in their written brief and through oral argument. See ECF No.

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40.

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The Court finds that Plaintiffs failed to engage in an “inquiry reasonable under the

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circumstances” before filing their Emergency Motion. Defendant provided Plaintiffs’ counsel

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information via email, before Plaintiffs filed their Emergency Motion, that Nadine Lipson had a

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Las Vegas address and has been registered to vote in Las Vegas since March 1, 2001, in direct

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contradiction to Plaintiffs’ conclusory statement that Lipson continuously resided in Montana for

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the past twenty years. Ex. C at 2, ECF No. 14-3. This information should have given Plaintiffs

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pause and warranted a “reasonable inquiry” as to the question of Lipson’s domicile. This is

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especially so since Plaintiffs attached an affidavit to their motion, signed by Lipson under penalty

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of perjury, explicitly stating that she was a Montana resident. Ex. 1 at 3, ECF No. 5-2. Regardless

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whether Plaintiffs’ counsel was aware of the contradictory nature of this assertion in light of court

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filings as yet undiscovered, Lipson’s address and voter registration, as provided by opposing

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counsel, were enough to put Plaintiffs’ counsel on notice that there was some doubt as to whether

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Lipson was a resident of Montana. And Lipson, herself, would obviously have been aware of these

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discrepancies regarding her residence. Filing the Emergency Motion a mere two hours after

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receiving Defendant’s email, ECF No. 14 at 6, was objectively unreasonable in light of this new

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information.

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Thus, Plaintiffs failed to represent to the Court that to the “best of [their] knowledge,

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information, and belief, formed after an inquiry reasonable under the circumstances,” that the

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factual contention that Lipson was a resident of Montana had evidentiary support. Fed. R. Civ. P.

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11(b)(3). As a consequence of this failure to satisfy Rule 11(b)(3), the Court imposes reasonable

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attorneys’ fees resulting from the violation pursuant to Rule 11(c)(4). The Court finds that a

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reasonable aware of fees in this case is $10,000.

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VI.

CONCLUSION

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For the reasons stated above,

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IT IS THEREFORE ORDERED that Defendant’s Motion for Attorneys’ Fees (ECF No.

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14) is GRANTED. Plaintiffs are ordered to pay $10,00.00 to Defendant for attorneys’ fees

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incurred as a result of the Emergency Motion to Remand to State Court (ECF No. 5).

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DATED: September 30, 2019.

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__________________________________
RICHARD F. BOULWARE, II
UNITED STATES DISTRICT JUDGE

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