BAPU CORP. et al v. CHOICE HOTELS INTERNATIONAL,INC.

Filing 91

LETTER OPINION. Signed by Judge William J. Martini on 12/23/10. (gh, )

BAPU CORP. et al v. CHOICE HOTELS INTERNATIONAL,INC.

Doc. 91

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
M A R T I N LU T H E R KIN G JR . FED E R A L BLD G . & U . S . C O U R T H O U S E 5 0 W A L N U T STR E E T , P.O . BO X 419 N E W A R K , N J 07101-0419

[phone]

WILLIAM J. MARTINI JUDGE

L E T T E R OPINION D e c e m b e r 23, 2010

M ic h a e l R. Curran E -4 Greenbriar Court C lif to n , New Jersey 07012 (Attorney for Plaintiffs) D a v id A. Haworth Neal Walters B a lla rd , Spahr, Andrews & Ingersoll, LLP P la z a 1000, Suite 500, Main Street V o o rh e e s, New Jersey 08043 (Attorneys for Defendant) RE: B a p u Corp., et al. v. Choice Hotels International, Inc. C iv . No. 07-5938 (WJM)

D e a r Counsel: T h is matter comes before the Court on Defendant Choice Hotels International's (" C h o ic e " ) motion for sanctions pursuant to Rule 11. Defendant Choice seeks monetary s a n c tio n s against Plaintiffs' counsel, Michael R. Curran. After consideration of the m o v in g papers and Plaintiffs' opposition, insofar as Defendant seeks monetary sanctions, D e f e n d a n t's motion is DENIED. I. BACKGROUND

S in c e the Court writes solely for the benefit of the parties, only a brief summary of th e most relevant facts follows. Plaintiffs entered into a franchise agreement with D e f e n d a n t Choice Hotels, which allowed them to operate a hotel under the name Quality In n . Under the agreement, Plaintiffs were to complete all renovations on the facility by

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November 2000. When they failed to do so, a long back-and-forth began between the p a rtie s , which culminated in Choice terminating the franchise agreement in 2004. Choice th e n served Plaintiffs with a demand for arbitration. After a contested arbitration hearing, th e arbitrator awarded damages to Choice in the amount of $142,560 and costs in the a m o u n t of $7,975 on January 9, 2008. P la in tif f s then moved to vacate the arbitration award before this Court. That m o tio n was first granted and then denied on a motion for reconsideration. Bapu Corp. v. C h o ic e Hotels Int'l, Inc., Civ. No. 07-5938, 2008 U.S. Dist. LEXIS 71252 (D.N.J. Sept. 8 , 2008). When this Court denied Plaintiffs' motion to vacate, it also granted Defendant's m o tio n to confirm the arbitration award. Id. at *20. Plaintiffs then filed a motion for re c o n s id e ra tio n , which the Court denied, and subsequently appealed to the Third Circuit, w h e re the Court's order confirming the arbitration award was affirmed. Bapu Corp. v. C h o ic e Hotels Int'l, Inc., Civ. No. 07-5938, 2008 U.S. Dist. LEXIS 94577 (D.N.J. Nov. 2 0 , 2008); Bapu Corp. v. Choice Hotels Int'l, Inc., 371 Fed. Appx. 306 (3d Cir. 2010). The Third Circuit also granted an award of attorneys' fees, and subsequently denied P la in tif f s ' motion for reconsideration of that award. D e f e n d a n t had made a motion for attorneys' fees and costs under the franchise a g re e m e n t that was stayed while Plaintiffs' appeal to the Third Circuit was pending. Once the appeal had ended, the Court granted Defendant's motion for attorneys' fees and c o s ts . Bapu Corp. v. Choice Hotels Int'l, Inc., Civ. No. 07-5938, 2010 U.S. Dist. LEXIS 5 3 1 8 3 (D.N.J. June 1, 2010). In response, Plaintiffs again filed a motion for re c o n s id e ra tio n ,1 followed by an amended motion for reconsideration, which the Court d e n ie d , and Plaintiffs subsequently appealed. Bapu Corp. v. Choice Hotels Int'l, Inc., C iv . No. 07-5938, 2010 U.S. Dist. LEXIS 84231 (D.N.J. Aug. 17, 2010). Defendant then f ile d the instant motion for sanctions pursuant to Rule 11.2 II. D ISC U S S IO N

D e f e n d a n t Choice has filed a motion for sanctions, alleging that Plaintiffs' a m e n d e d motion for reconsideration of the Court's award of attorneys' fees is in violation

Plaintiffs' motion for reconsideration of this Court's award of attorneys' fees and costs contained "identical content" to the motion for reconsideration Plaintiffs filed after the Third Circuit awarded Defendant attorneys' fees and costs. (ECF Docket No. 75, at 2.) After Plaintiffs filed the amended motion for reconsideration, Choice served a copy of this motion for sanctions and the accompanying memorandum of law on July 21, 2010, pursuant to the safe harbor provision of Rule 11(c). 2
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of Fed. R. Civ. P. 11. Choice asserts that the arguments in Plaintiffs' amended motion for re c o n s id e ra tio n are frivolous and baseless, and were presented for the improper purpose o f causing unnecessary delay and increasing the cost of litigation, in violation for Rule 1 1 (b )(1 ) and (b)(2). R u le 11 of the Federal Rules of Civil Procedure is "intended to discourage the f ilin g of frivolous, unsupported, or unreasonable claims." Leuallen v. Borough of P a u ls b o r o , 180 F. Supp. 2d 615, 618 (D.N.J. 2002). Specifically, Rule 11 requires that w h e n presenting a pleading, motion, or other paper to the Court, counsel must preform a re a s o n a b le inquiry to insure that: (1 ) it is not being presented for any improper purpose, such as to harass o r to cause unnecessary delay, or needlessly increase the cost of litig a tio n ; [and] (2) the claims, defenses, and other legal contentions are warranted by e x is tin g law or by a nonfrivolous argument for extending, modifying, or re v e rs in g existing law or for establishing new law. . . . F e d . R. Civ. P. 11(b)(1)-(3). Rule 11 requires the Court to determine whether counsel m a d e a "reasonable inquiry into both the facts and the law supporting a particular p le a d in g " to ensure that it is well-grounded and does not violate either Rule 11(b)(1) or (2 ). Schering Corp. v. Vitarine Pharmaceuticals, Inc., 889 F.2d 490, 496 (3d Cir. 1989); s e e Ford Motor Co. v. Summit Motor Products, Inc., 930 F.2d 277, 289 (3d Cir.), cert. d e n ie d , 502 U.S. 939, 112 S. Ct. 373, 116 L. Ed. 2d 324 (1991). Essentially, Rule 11 re q u ire s counsel to "stop, think, and investigate" before filing. Wartsila NSD N. Am., Inc. v . Hill Int'l, Inc., 315 F. Supp. 2d 623, 627 (D.N.J. 2004). If an attorney is found to be in violation of Rule 11(b), monetary sanctions may be im p o s e d , or the court may issue "an admonition, reprimand or censure" in lieu of a fine. Fed. R. Civ. P. 11(c) Advisory Committee Notes, 1993 Amendments; see Shepherdson v. N ig r o , 179 F.R.D. 150, 153 (E.D. Pa. 1998) (denying request for sanctions, but a d m o n is h in g counsel to more carefully comply with Rule 11 in the future). The Court w ill first determine whether Plaintiffs' amended motion for reconsideration warrants s a n c tio n s pursuant to Rule 11, and if so will then determine whether monetary or n o n m o n e ta ry sanctions are appropriate. A. M o tio n for Reconsideration Standard

For a motion for reconsideration to be well-grounded, it must do more than just " re litig a te old matters," or "raise arguments or present evidence that could have been 3

raised prior to the entry of judgment." P. Schoenfeld Asset Management LLC v. Cendant C o r p ., 161 F. Supp. 2d 349, 352 (D.N.J. 2001). Under Local Civil Rule 7.1, a motion for re c o n s id e ra tio n may be granted only if: (1) an intervening change in the controlling law h a s occurred; (2) evidence not previously available has become available; or (3) it is n e c e s s a ry to correct a clear error of law or prevent manifest injustice. Database Am., Inc. v . Bellsouth Adver. & Pub. Corp., 825 F. Supp. 1216, 1220 (D.N.J. 1993). Plaintiffs' amended motion for reconsideration raised three arguments: (1) the a tto rn e ys ' fees were barred by a three-year contractual statute of limitations; (2) the Court f a ile d to apply Maryland law in the lodestar analysis; and (3) the Court overlooked M a ryla n d 's doctrine of merger and bar. The motion was denied because the arguments p u t forth did not satisfy any of the motion for reconsideration factors. Bapu Corp. v. C h o ic e Hotels Int'l, Inc., Civ. No. 07-5938, 2010 U.S. Dist. LEXIS 84231 (D.N.J. Aug. 1 7 , 2010) ("August 17 Order"). However, this unsuccessful motion should only be c o n s id e re d a violation of Rule 11(b) if it was filed without counsel making a reasonable in q u iry to determine if it contained more than frivolous or baseless arguments. See P ro te c tiv e Life Ins. Co. v. Dignity Viatical Settlement Partners, L.P., 171 F.3d 52, 58 (1st C ir. 1999) ("The mere fact that a claim ultimately proves unavailing, without more, c a n n o t support the imposition of Rule 11 sanctions"). Motions to reconsider often have little merit, but sanctions should be imposed only if the motion is not based on any re a s o n a b le grounds. EBI, Inc. v. Gator Industries, Inc., 807 F.2d 1, 6 (1st Cir. 1986). B. S ta tu te of Limitations

P la in tif f s ' first argument on reconsideration is that the grant of attorneys' fees was b a rre d by a three-year contractual statute of limitations in the franchise agreement. This C o u rt did not consider this argument because it was raised for the first time on re c o n s id e ra tio n . (August 17 Order, at 2.) Defendant argues that this makes the argument b a s e le ss . However, the statute of limitations argument had been raised as a defense in o th e r motions, though this Court found that to be irrelevant to the motion for re c o n s id e ra tio n . (Id.) Therefore, Plaintiffs' counsel may have believed the argument was ju s tif ie d on reconsideration, though he was ultimately mistaken. Defendant also argues that since the contractual statute of limitations argument had a lre a d y failed multiple times concerning the arbitration award, it was clearly frivolous to b rin g it up again on this motion for reconsideration. However, Plaintiffs' original a rg u m e n t regarding the statute of limitations issue failed as to the arbitration as a whole. Plaintiffs' counsel may have believed the statute of limitations could be upheld as to one a s p e c t (a request for attorneys' fees) even though the arbitrator did not uphold it as to

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another (the arbitration itself). Therefore, while tenuous and ultimately lacking merit, P la in tif f s ' statute of limitations argument was not entirely frivolous. C. M a ryla n d Lodestar Analysis

P la in tif f s ' second argument on reconsideration is that the Court failed to properly a p p ly Maryland law regarding the lodestar analysis in determining attorneys' fees. However, as the Court pointed out in the order, Plaintiffs do not identify how the a p p lic a tio n of Maryland law would change the outcome of the attorneys' fees calculation. (August 17 Order, at 2.) Maryland and Third Circuit case law on the lodestar analysis is s u b s ta n tiv e ly the same, as apparent in Plaintiffs' amended motion for reconsideration. Compare Pls.' Am. Mt. for Recons. at 11 ("[t]he [Maryland] cases cited emphasize that a c o u rt must do a detailed inquiry into the reasonableness of a fee"), with id. at 12 (citing a D is tric t of New Jersey case for the premise that a court must "carefully and critically e v a lu a te the hours and hourly rate set forth by counsel"). Plaintiffs do not identify any n e w or overlooked standards regarding calculating attorneys' fees, and instead simply re ite ra te the same standards applied in the Court's opinion and request a different result. (Pls.' Am. Mt. for Recons. at 11-12.) Essentially, their only argument is that the Court c ite d to Third Circuit and New Jersey cases instead of Maryland cases, even though the s u b s ta n tiv e law is the same. This argument is baseless on its face. D. M a ryla n d Doctrine of Merger and Bar

P la in tif f s ' third argument on reconsideration is that the Court failed to properly a p p ly Maryland merger and bar doctrine. This Court ruled that since this argument was b e in g raised for the first time on a motion for reconsideration, it would not be considered. (August 17 Order, at 2.) Like the statute of limitations argument, Plaintiffs' counsel may h a v e believed that the argument had been raised, since the Opposition to Defendant's m o tio n for attorneys' fees pointed to the need to apply the Maryland choice of law p ro v is io n in the franchise agreement. (Pls.' Opp'n to Def.'s Mot. for Att'ys' Fees, at 6.) H o w e v e r, Plaintiffs' counsel should have known that a general reference to Maryland law is not enough to support an argument on reconsideration based on the specific doctrine of m e rg e r and bar. A reasonable inquiry into the legal requirements for a motion for re c o n s id e ra tio n would have revealed that raising this argument for the first time on re c o n s id e ra tio n was frivolous. F. Im p o s itio n of Sanctions Under Rule 11

P la in tif f s ' counsel may have believed that his arguments, though weak and u ltim a te ly rejected by the court, were not meritless. However, his repeated use of 5

motions for reconsideration and appeals to inappropriately raise new arguments and to re ite ra te arguments that have already repeatedly been rejected runs afoul of Rule 11. Having found that Plaintiffs' counsel's conduct violated Rule 11, the Court must d e te rm in e the appropriate sanctions to impose. Defendant requests that Plaintiffs' c o u n s e l be ordered to reimburse Defendant for reasonable fees and costs incurred in re s p o n d in g to the two reconsideration motions. O n c e a court determines that Rule 11(b) has been violated, it is within the court's d is c re tio n to determine what type of sanctions, if any, should be imposed. Fed. R. Civ. P. 1 1 (c ). The Rule specifically states that, A sanction imposed under this rule must be limited to what suffices to d e te r repetition of the conduct or comparable conduct by others similarly s itu a te d . The sanction may include nonmonetary directives; an order to p a y a penalty into court; or, if imposed on motion and warranted for e f f e c tiv e deterrence, an order directing payment to the movant of part or a ll of the reasonable attorney's fees and other expenses directly resulting f ro m the violation. F e d . R. Civ. P. 11(c)(4). The Advisory Committee Notes on the 1993 Amendments to R u le 11(c) point out that "the sanctions [imposed] should not be more severe than re a s o n a b ly necessary to deter repetition of the conduct by the offending person or c o m p a ra b le conduct by similarly situated persons." See Zuk v. Eastern Pa. Psychiatric In s t. of the Medical College, 103 F.3d 294, 300-301 (3d Cir. Pa. 1996) ("Any sanction im p o s e d should be calibrated to the least severe level necessary to serve the deterrent p u rp o s e of the Rule." (citing 5A Charles Alan Wright & Arthur R. Miller, Federal P ra c tic e & Procedure § 1336 (2d ed. Supp. 1996))). As explained above, the Court has identified some bases that Plaintiffs' counsel c o u ld have reasonably believed supported the arguments in the amended motion for re c o n s id e ra tio n . While his overzealousness amounted to enough frivolous and baseless a rg u m e n ts as to violate Rule 11, his conduct does not rise to the level warranting m o n e ta ry sanctions to deter the behavior. Instead, the Court concludes that a formal a d m o n itio n should be sufficient to deter Plaintiffs' counsel going forward from p re s e n tin g pleadings or motions without first making a thorough inquiry to ensure they a re well-grounded. This should be considered formal notice to Plaintiffs and Plaintiffs' c o u n s e l that such conduct, if repeated in the future, may result in monetary sanctions.

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III.

C O N C L U S IO N

F o r the foregoing reasons, Defendant Choice Hotels International's motion for s a n c tio n s pursuant to Rule 11, insofar as Defendant seeks attorneys' fees and costs, is D E N I E D . However, Plaintiffs' counsel Michael R. Curran is admonished to exercise m o re care in the future to ensure faithful compliance with the strictures of Rule 11. An O rd e r follows this Letter Opinion.

/s/ William J. Martini WILLIAM J. MARTINI, U.S.D.J.

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