Caraballo et al v. Bagbeh et al

Filing 32

ORDER granting 15 Motion for Sanctions. Counsel should read order in its entirety for critical deadlines. Signed by Senior Judge Malcolm J. Howard on 8/9/2011. (Heath, D.)

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

SOUTHERN DIVISION

NO. 7:10-CV-122-H

STACY CARABALLO, for herself
and on behalf of all others
similarly situated

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)
)
)

plaintiff,

)
)
)

)

v.

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)

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)

SHOREH BAGBEH, SCOTT
WELLINGTON RUDOLPH, ESQ.;
BLUE VIEW CORPORATION d/b/a
SB Classics, Inc.; LOAN
SERVICING GROUP, LLC; K.H.F.
LENDING, LLC; INSTANT
FUNDING, LLC; STEPHEN M.
RUSSELL, SR., ESQ.; and BELL,
DAVIS & PITT, P.A.;

ORDER

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)
)
)

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Defendants.

)

This matter is before the court on a motion for sanctions
filed by prior defendants Stephen M. Russell
Bell,

Davis

"attorney

&

Pitt,

P.A. 's

defendants").'

("Bell
Plaintiff

("Mr. Russell")

Davis")
has

and

(collectively

the

responded,

and

Mr. Russell and Bell Davis filed the motion for sanctions on
February 7, 2011. They were dismissed from this action by
order, filed March 31, 2011, granting their motion to dismiss.
1

the

attorney

defendants

have

This

replied.

matter

is

ripe

for

action

on

adjudication.
STATEMENT OF THE CASE

Stacy
behalf

Caraballo

of

and

themselves

Kelly

and

Jacobs

others

filed

similarly

this

situated

seeking

monetary damages under the Fair Debt Collections Practices Act
(FDCPA);

federal

and

North Carolina law.
to dismiss,

dismissed

Remaining
against
Esq.,

before

statutes

(RICO);

Following the attorney defendants'

and

motion

In this court's order of March 31, 2011, the
the

attorney

the

court

defendants
Blue

racketeering

Kelly Jacobs filed a Notice of Voluntary Dismissal

of all his claims.
court

state

View

Servicing Group,

Shoreh

are

plaintiff

Bagbeh,

Corporation
LLC,

defendants

K. H. F.

d/b/a

Scott
SB

Lending LLC,

from

this

matter.

Caraballo's
Wellington

Classics,

claims
Rudolph,

Inc.,

Loan

and Instant Funding,

LLC.
Allegations against the Attorney Defendants
Plaintiff alleged the following facts against the attorney
defendants,

as previously stated by this court in its order on

defendants' motion to dismiss:
Mr. Russell is a partner with Bell Davis,
offices in Winston-Salem, North Carolina.
In
Blue View Corporation ("Blue View") retained
defend it before this court in Massey v. Blue
7:08-CV-39, an action filed by plaintiffs'
instant matter.

2

a law firm with
2008, defendant
Mr. Russell to
View Corp., No.
counsel in the

Based on Mr. Russell's representation of Blue View in the
Massey action, plaintiff alleges that "Mr. Russell has actual
knowledge that [the Blue View Defendants] make their entire
living by means of illegal and harmful collection practices,
regularly including mail and wire fraud."
(Compl. ~ 27.)
The
complaint
further
alleges,
as
relates
to
Mr.
Russell's
representation of the Blue View defendants in the Massey action:
30. Mr. Russell also knew that Blue View Defendants'
recordkeeping
is
often
careless
and
grossly
erroneous, with the errors invariably favoring Blue
View Defendants

32. Mr. Russell must have billed at least 50 hours
for
his
work
in
the
Massey
case' s
extensive
discovery, complicated motion practice, and at least
one overnight trip from North Carolina to San Diego .

33. Since Mr. Russell has some 30 years experience,
and [Bell Davis'] advertising boasts of its selection
as "the top-ranked law firm in Winston-Salem in Legal
Malpractice Law" on the sole basis of Mr. Russell's
expertise, his hourly rate must be $300 or more.
34. Total fees for the Massey case must therefore
have been in excess of $10,000, and remitted to [Bell
Davis] account (s) at Mr. Russell's direction in two
or more transactions
(Id.

~~

30, 32, 33, 34.)

On or about April 3, 2000, plaintiff Stacy Caraballo
incurred a debt of approximately $20,500 from Bank One for a
home equity line of credit secured by her primary residence.
According to the complaint, the loan agreement provided for the
following fees:
$25 return item charge; $25 late fee for
payments not made within 10 days of the due date; annual fees;
payment of closing costs; stop payment fee; overlimi t charge;
credi t line check printing charge; schedule fee change if the
credi t line was terminated in two years; charge for writing
checks over the limit; and return checks for such items. (Compl.
H 38-39.)

3

Defendant Blue View acquired Caraballo's debt from Bank One
in February 2004.
At the time it was acquired, the debt was
already in default.
After acquisition, Blue View attempted to
collect on the debt by sending monthly statements to Caraballo
and employing the services of defendants Loan Servicing Group
and K.H.F. Lending.
From February 2004 through April 2010, Blue
View,
Loan Servicing Group and/or K.H.F.
Lending contacted
Caraballo in an
attempt to collect on the debt.
Plaintiff
alleges that these attempts to collect on the
debt were
confusing and deceptive
(Compl. H 45, 48), were false and
violative of 15 U.S.C. §§ 1692e(2),
(10) and 1692f(1)
(id. ~I
62), constituted mail fraud in violation of 18 U.S.C. § 1341
(id. ~ 53), constituted wire fraud in violation of 18 U.S.C.
§-1343 (id. ~ 62), and were harassing and annoying in violation
of 15 U.S.C. § 1692d(5) (id. H 65-66).
In the early months of 2010, plaintiff stopped making
timely payments on her debt.
Mr. Russell was retained by Blue
View to assist with contacting Caraballo's counsel regarding her
outstanding debt.
On May 10,
2010,
Mr.
Russell wrote to
Caraballo's counsel inquiring as to why Caraballo had stopped
making payments on her account.
The complaint alleges that this
letter constitutes dunning and violates the mail fraud statutes
and other federal law. (Compl. ~~ 70-71.)
On May 27,2010, Mr.
Russell's
legal
assistant,
at
the
request
of
Caraballo's
counsel, provided to Caraballo's counsel a statement showing
Caraballo's payments and balance owed.
The complaint alleges
this email violated federal and state law and constitutes wire
fraud. (Compl. H 75-76.)
The complaint alleges that "it is not at all clear to Ms.
Caraballo just how much she owes, or if in fact she has paid
this debt off entirely."
(Id. ~ 78.) The complaint also states
that Caraballo intends "to amend the complaint to add counts for
RICO,
fraud and other causes of action that require actual
damages" if she can determine that she has paid more money on
the debt than she owes.
(Compl. ~ 80.)

COURT'S DISCUSSION
In

the

defendants,
a

order

dismissing

the

claims

against

the

attorney

this court found that plaintiff had failed to state

claim upon which

claims alleged,

relief

may be

granted,

as

to

each of

the

including both the Fair Debt Collection Practice
4

Act claims,

as well as the various state law claims including

fraud, conversion, etc.
Rule 11 of the Federal Rules of Civil Procedure provides,
in pertinent part:
By presenting to the court
(whether
filing, submitting, or later advocating)
written motion,
or other paper,
an
unrepresented party is certifying that to
the
person's
knowledge,
information,
formed
after
an
inquiry
reasonable
circumstances, ­

by signing,
a pleading,
attorney or
the best of
and belief,
under
the

(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;

(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
lawi

(3)

the
allegations
and
other
factual
contentions have evidentiary support or, if
specifically so identified, are likely to
have evidentiary support after a reasonable
opportunity for further investigation or
discovery; and

(4)

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

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

5

This

court

finds

that

plaintiff's

claims

did

not

have

evidentiary support and were not warranted by existing law or a
reasonable

extension

dismissing

those

claims

Procedure 12(b) (6),

the

order

Rule

of

Civil

no evidentiary support

for

these

pursuant

there

is

Furthermore,

allegations.

As

thereof.

the

detailed

to

court

in

Federal

finds

these

allegations

were brought for an improper purpose. As detailed in defendants'
motion

for

filings

before

Superior

sanctions,

Court

this

to

be

has

the

State Bar and

reiterating

the

baseless

laundering

Further,

counsel

court,

attorney defendants
money

plaintiff's

have

and

engaged

receipt

in

of

made

the Wake

allegations

racketeering,
illegally

repeated
County

that

the

wire

fraud,

obtained

funds.

those allegations were made by an attorney who claimed
experienced

in

FDCPA

litigation.

Plaintiff's

counsel

chose to pursue litigation against the attorney defendants,

and

this court finds that plaintiff's counsel has violated Rule 11.
See Brubaker v.

City of Richmond,

943 F.2d 1363,

1373

(4th Cir.

1991) .
After it is determined that Rule 11 has been violated,
the amount of sanction is determined. In calculating
the sanction, a district court should bear in mind
that the purposes of Rule 11 include "compensating the
victims of the rule 11 violation, as well as punishing
present litigation abuse, streamlining court dockets
and facilitating court management." In re Kuntsler,
914 F. 2d at 522. The amount of a monetary sanction,
however, should always reflect the primary purpose of
Rule Il--deterrence of future litigation abuse. Id. at
522-23. Accordingly, a district court should expressly
6

consider the four factors adopted by this circuit in
In re
Kuntsler:
" (1)
the
reasonableness
of
the
opposing party's attorney's fees; (2) the minimum to
deter; (3) the ability to pay; and (4) factors related
to the severity of the Rule 11 violation." Id. at 523
(citing White v. General M otors Corp., 908 F .2d 675
(lOth Cir .1990)) .
Brubaker, 943 F.2d at 1373-74.
Defendant's motion for sanctions [DE #16] is GRANTED.
CONCLUSION

For
stated

the

foregoing

reasons,

as

in

the

attorney

defendants'

memorandum

in

support

thereof,

[DE #16]
days,

is GRANTED.

an affidavit

defending
motion.

this

well

as

motion

their

for
for

reasons

sanctions

and

for

sanctions

Attorney defendants shall file,

within 30

for

attorneys'

action,

including

motion

the

fees
the

and
cost

costs
of

incurred

this

sanctions

Plaintiff's counsel shall have 20 days from the date of

defendants'

filing

in which to

respond.

The

court will

then

determine an appropriate sanction against plaintiff's counsel.'
j1l

This

in

~~ay of August 2011.

Senior United States District Judge
At Greenville, NC
#26

, The court notes these sanctions are being granted against
plaintiff's counsel, not against plaintiff.
7