Wesolek v. Layton
Filing
32
MEMORANDUM OPINION AND ORDER granting in part and denying in part 19 MOTION For Relief Seeking Recovery of Attorneys Fees and Expenses, mooting 27 Motion for Relief. Plaintiffs' counsel is ordered to pay defendants $53,390.00 for attorney's fees and $2,412.00 for reasonable expenses by 4/14/2014. (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
JOHN S. WESOLEK, DEBORAH J.
§
WESOLEK, JOEL T. JOHNSON,
§
RANDY LINSTEDT, DOUGLAS A.
§
CARSON, DR. ENRIQUE REYES-B,
§
MARIA GEORGINA REYES, LEVI
§
LINDEMANN, STEPHANIE LINDEMANN, §
MICHAEL P. WAGNER, DANIEL
§
MILLER, KRISTINA MILLER,
§
ROEL TREVINO, TIM PETERSON,
§
JANICE LAU, MIKE TASZAREK,
§
E. BRENT LUNDGREN, GLORIA
§
GACKLE, PETE HILL, KELCEY HILL, §
KEN ULLMANN, DALE SCHNEIDER,
§
DEBORAH SCHNEIDER, JOHN
§
MCINTOSH, MARGARET MCINTOSH,
§
MERYL A. WILLERT, JR., JULIE
§
WILLERT, TYLER ROEHL, PAMELA G. §
KLOOS, JEFFERY T. KLOOS, JUDY
§
KVAALE, CLIFF LARSON, JUDY
§
DVORAZK, MONA THORSTAD, ARLYN
§
LAND, STEVE JOHNSON, LORI
§
JOHNSON, JANET SKINNER, and
§
GEORGE SLIGHT,
JERRY TALBERT,
§
JASON GION, VICKIE GION, MARY
§
OHLHAUSER, RANDY OHLHAUSER,
§
TIM HOLLAND, RICK ERICKSON,
§
PAUL QUINNILD, CAROL QUINNILD,
§
MARK FOLAND, KAREN FOLAND,
§
DEVIN LUBINUS, BRENT LARSON,
§
SANDRA UELAND, JOE HENJUM,
§
GARY HEARNEN, DON HEARDEN,
§
RANAIE BALL, BRIAN TJERLUND,
§
MIKE TASZARCK, RON BlUR, DAVE
§
PAULSON, BRUSE KUSLER, MIKE
§
HOLMGREN, and GUSTAV KOPRIVA,
§
Individually and Derivatively,
§
on Behalf of LAYTON ENERGY
§
WHARTON FUND, LP and LAYTON
§
ENERGY FUND 2, LP,
§
Plaintiffs,
§
§
v.
DANIEL
LAYTON
LAYTON
ENERGY
LAYTON
§
§
LAYTON, J. CLARK LEGLER,
ENERGY TEXAS, LLC,
CORPORATION, LAYTON
WHARTON FUND, LP, and
ENERGY FUND 2, LP,
Defendants.
§
§
§
§
§
§
§
§
CIVIL ACTION NO. H-12-3210
MEMORANDUM OPINION AND ORDER
Pending before the court is Defendants'
Motion for Relief
(Docket Entry No. 19) in which
Defendants seek recovery of all of the attorney's fees
and expenses incurred by Defendants in Wesolek I and
Wesolek II in the current amount of approximately
$350,000, jointly and severally, from all of Plaintiffs
who were also Plaintiffs in Wesolek I and their counsel,
Kevin L. Colbert, and his law firm, The Law Office of
Kevin L.
Colbert,
JD,
LL.M,
PLLC.
In addition,
Defendants seek recovery of all of the attorney's fees
and expenses incurred by Defendants in Wesolek II,
jointly and severally, from Plaintiffs and their counsel,
Kevin L. Colbert, and his law firm, The Law Office of
Kevin L. Colbert, JD, LL.M, PLLC. 1
Also pending is Plaintiff, Michael P. Wagner's, Response and Motion
for
Relief
(Docket
Entry
No.
27)
seeking
orders
requiring
defendants to provide him copies of their relevant fee agreements,
requiring plaintiffs' counsel to provide a written explanation of
the status of the case, and an order adding 90 days to the filing
deadlines
set
forth
(Docket Entry No. 25)
in
the
court's
Order of
January 13,
2014
For the reasons stated below, defendants'
motion for relief will be granted in part and denied in part, and
Wagner's motion for relief will be denied as moot.
I.
Factual and Procedural Background
Defendants in this action are partnerships and their managing
partners who have twice been sued by the same attorney representing
lDefendants'
~
Motion for Relief,
30.
-2 -
Docket Entry No.
19, p.
18
groups of plaintiffs who invested in the partnerships.
The current
action is the second of the two actions filed against the named
defendants
("Wesolek I I") .
December 21,
2011,
The first
action was
initiated on
by the filing of a class action petition in
state district court, which was removed to this court on January 6,
2012 (Wesolek, et al. v. Layton, et al., Civil Action No. 4:12-cv00063, "Wesolek I") .
in the
current
On January 25, 2012, the first 39 plaintiffs
lawsuit
filed
Complaint in Wesolek 1.2
filed
motions
to
Plaintiffs'
On February 2 and 8,
dismiss
In
response
voluntarily dismissed one defendant Inc. -
Amended Class Action
to
2012,
defendants
which
plaintiffs
Platinum Energy Solutions,
and argued that the claims asserted against the remaining
defendants should not be dismissed. 3
On May 18, 2012, the court
entered a Memorandum Opinion and Order granting defendants' motions
to dismiss and a Final Judgment dismissing plaintiffs' derivative
claims
without
prejudice
and
plaintiffs'
direct
claims
with
prejudice, Wesolek v. Layton (Wesolek I), 871 F. Supp. 2d 620 (S.D.
Tex. 2012) 4
The court concluded that the plaintiffs' claims for common law
fraud
and violation of
the
Texas
Securities Act
arising
from
2Wesolek I, Docket Entry No. 11.
3Id., Docket Entry Nos. 15, 16, 18, and
motions
to dismiss amended complaint)
and
(plaintiffs' responses to motions to dismiss) .
21 (defendants'
22,
23,
and24
4Id., Docket Entry Nos. 30 (Memorandum Opinion and Order) and
31 (Final Judgment) .
-3-
misrepresentations made before they invested in the partnerships
were claims that the plaintiffs could assert directly, but that the
plaintiffs'
claims for conversion,
violation of the Texas Theft
Liability Act, money had and received, breach of fiduciary duty,
negligence, common law fraud, and violation of the Texas Securities
Act arising from misrepresentations made after they had invested in
the
Funds
were
claims
that
the
plaintiffs
derivatively on behalf of the Funds.
could
only
assert
The court dismissed with
prejudice the plaintiffs' direct claims for common law fraud and
violation
the
of
misrepresentations
Texas
made
Securities
before
the
Act
plaintiffs
from
arising
invested
in
the
partnerships after concluding that the plaintiffs failed to plead
fraud with particularity as
required by Federal Rule of Civil
Procedure 9(b), and pursuant to Rule 12(b) (6) for failure to state
a claim for which relief may be granted.
But the court dismissed
without prejudice the claims that plaintiffs could only assert
derivatively pursuant to Rule 12(b) (1) for lack of standing.
Id.
at 638.
Plaintiffs
Wesolek
I.
did
not
Instead,
appeal
on
the
August
final
30,
judgment
2012,
entered
plaintiffs
in
acting
individually and derivatively on behalf of Layton Energy Wharton,
LP or the Layton Energy Fund 2,
LP filed Plaintiffs'
Original
Petition and Requests for Production in the 189th Judicial District
Court of Harris County, Texas, against defendants Daniel Layton,
J.
Clark Legler,
Layton Energy Texas,
-4 -
LLC,
Layton Corporation,
Layton Energy Wharton Fund, LP, and Layton Energy Fund 2, LP.
The
Plaintiffs' Original Petition asserted claims for common law fraud,
conversion, violation of the Texas Theft Liability Act, money had
and received,
violations of the Texas Securities Act,
fiduciary duty,
Plaintiffs'
and negligence. 5
breach of
prayer for relief
sought
rescission of the sale of their limited partnership
units, recovery of all sums invested in Wharton Energy
Fund and Layton Energy Fund 2 on behalf of themselves and
the members of the classes.
Specifically, Plaintiffs
seek recovery of $13,500,00[0] plus pre-judgment, postjudgment interest, costs of court, punitive damages and
attorney's fees. 6
On October 29,
2012,
(Docket Entry No.1)
defendants
filed a
Notice of Removal
asserting that "[t]his action is removable
under the provisions of the Class Action Fairness Act
u.s.C.
§
1332(d), and 28 U.S.C.
§
(CAFA),
28
1453(b) ,"7 and that "[a]ll the
elements for removal of the instant action under CAFA are met."8
The case was assigned to Judge Gilmore.
On the same day defendants
filed Defendants' Motion to Dismiss Plaintiffs' Original Petition
(Docket Entry No.2) pursuant to Federal Rules of Civil Procedure
9(b) for failure to plead fraud with particularity and 12(b) (6) for
5Plaintiffs' Original Petition and Requests for Production
("Original Petition"), Exhibit B to Notice of Removal, Docket Entry
No. 1-3.
6Id. at 19
~
127.
7Notice of Removal, Docket Entry No.1, p. 3
8Id.
~
V. 7.
-5-
~
V.5.
failure to state a claim for which relief may be granted.
October 29,
2012,
defendants
(Docket Entry No.3) .
response
to
the
filed Defendants'
Also on
Original Answer
On November 19, 2012, plaintiffs filed a
defendants'
motion
to
dismiss
in
which
they
"concede[d] they do not have direct claims against Defendants and
that
all
claims
are
derivative
in nature
on behalf
Wharton Energy, LP and Layton Energy II, LP."9
that
"[b]ecause
representations
Defendants
as
pled
do
that
not
after
about
facts
Plaintiffs
limited partners, Defendants motion to dismiss under 12(b)
9(b)
should
be
denied."lo
At
defendants'
motion to dismiss,
replead. 11
On December
Plaintiffs' Response
3,
the
end
of
Layton
Plaintiffs asserted
complain
occurred
of
their
and
became
(6)
response
and
to
plaintiffs also sought leave to
2012,
defendants
(Docket Entry No. 13).
filed
a
Reply
to
Also on December 3,
2012, defendants filed a Notice of Related Litigation, Motion to
Transfer,
No. 12)
and Motion for Expedited Consideration
(Docket Entry
in which defendants noticed Judge Gilmore of the related
Wesolek I case, and based on that case, requested transfer to this
court.
Plaintiffs did not oppose defendants' request to transfer.
On December 5, 2012, Judge Gilmore entered an Order transferring
9Plaintiffs'
Response to Defendants'
Motion to Dismiss
Plaintiffs' Original Petition ("Plaintiffs' Response"), Docket
Entry No.7, p. 3 ~ 4.
lOId.
at
3-4
([ 7
11
•
11Id. at 4.
-6-
the
current
action
to
this
court
(Docket
Entry No.
13).
On
December 18, 2012, Plaintiffs' Amended Class Action and Derivative
Complaint (Docket Entry No. 16) was filed.
On December 21, 2012, the court entered a Memorandum Opinion
and Order granting Defendants'
Motion to Dismiss
(Docket Entry
No. 17) and a Final Judgment dismissing all of plaintiffs' claims
with prejudice
(Wesolek II),
(Docket Entry No.
914
F.
Supp.
reasons explained in
§
Opinion
the
and
Order,
See Wesolek v.
18).
2d 853
(S.D.
Tex.
2012).
Layton
For the
II.A of the December 21, 2012, Memorandum
court
concluded
that
the
claims
the
plaintiffs asserted against the defendants directly for common law
fraud, conversion, violation of the Texas Theft Liability Act, Tex.
Civ. Prac. & Rem. Code
§
134.003(a), and the Texas Securities Act,
Tex. Rev. Civ. Stat. Art. 581-33, money had and received, breach of
fiduciary duty, and negligence were barred by the doctrine of res
judicata.
620) .
Id.
at 859-61
(citing Wesolek I,
For the reasons explained in
§
871 F.
Supp.
2d at
II.B of the December 21,
2012, Memorandum Opinion and Order, the court concluded that the
claims
that
the
plaintiffs
asserted
against
the
defendants
derivatively on behalf of Layton Energy Wharton Fund and the Layton
Energy Fund 2 for common law fraud,
Texas
§
Theft
Liability
Act,
Tex.
conversion, violation of the
Civ.
Prac.
&
Rem.
Code
134.003(a), and the Texas Securities Act, Tex. Rev. Civ. Stat.
Art. 581-33, money had and received, breach of fiduciary duty, and
negligence should be dismissed with prejudice pursuant to Federal
-7-
Rule of Civil Procedure 12(b) (6) for failure to state a claim for
which relief may be granted.
explained in
and
Order,
replead.
§
the
ld.
at 861-63.
For the reasons
II.C of the December 21, 2012, Memorandum Opinion
court
denied plaintiffs'
request
for
leave
to
ld. at 863-64.
On January 7, 2014, the Fifth Circuit dismissed as frivolous
plaintiffs' appeal from the December 21, 2012, Memorandum Opinion
and Order
defendants'
(Docket Entry No.
24).
The Fifth Circuit also denied
motion for costs and damages under Federal Rule of
Appellate Procedure 38.
II.
Analysis
Defendants argue that they are entitled to relief against
plaintiffs, plaintiffs' counsel, and his law firm in the form of
attorneys' fees and expenses incurred defending the claims asserted
in both Wesolek I and Wesolek I I because the claims asserted in
both actions were frivolous claims brought in bad faith for the
purpose of harassing the defendants, and because the plaintiffs'
pursuit of frivolous claims in two different actions disrupted the
defendants' business and caused the defendants to incur approximately $350,000 in attorney's fees and expenses.
Defendants argue
that they are entitled to their attorney's fees and expenses from
plaintiffs, plaintiffs' counsel, and his law firm as sanctions for
bad faith conduct because plaintiffs and their counsel
25.
different
have now filed and presented four
pleadings setting forth the same defective
-8-
allegations and claims in two different lawsuits
(original and amended pleadings in both cases), and have
further presented these claims and dragged out the
proceedings through various other filings, including
their Responses to Defendants' Motions to Dismiss in the
two lawsuits. Plaintiffs' lawsuits have had the desired
effect of harassing Defendants, disrupting Defendants'
business, and requiring that they spend significant time
and resources defending against them.
In this regard,
Plaintiffs' claims have also served as support for an
Internet campaign against Defendants to cast Defendants
as thieves and frauds.
Defendants put Plaintiffs and
Plaintiffs' attorney on notice that the claims were not
brought in good faith and that Defendants would seek
their attorney's fees and expenses if Plaintiffs
persisted in making the claims.
The Court entered a
Final Judgment dismissing these claims in Wesolek I,
providing that the direct claims were dismissed with
prejudice, and detailing the claims' deficiencies in its
accompanying 38-page Memorandum Opinion and Order.
26.
Nevertheless, Plaintiffs and their attorney
ignored the Court's Judgment in Wesolek I and brought the
same claims based on the same allegations again in
Wesolek II, requiring that Defendants spend additional
time and resources once again to defend themselves, and
to file collectively their fifth motion to dismiss these
claims, and that the Court spend its judicial resources
once again to address them.
In granting Defendants'
Motion to Dismiss, the Court found that Plaintiffs'
direct claims were barred by res judicata based on the
Final Judgment in Wesolek I.
In addressing Plaintiffs'
derivative claims, the Court further found:
The
court's
opinion
in
Wesolek
I
put
plaintiffs on notice of the need to plead
facts
capable
of
establishing
that
the
preconditions for asserting derivative claims
under
state
and
federal
law have
been
satisfied.
Yet, despite this notice in
Wesolek I, plaintiffs filed not only an
Original Petition but also an Amended Class
Action and Derivative Complaint in this action
asserting derivative claims without alleging
with
particularity
facts
capable
of
establishing
that
the
preconditions
for
bringing derivative claims required by state
and/or federal law have been satisfied.
-9-
(Wesolek II, Doc. No. 17, p. 22). Although the Court had
already dismissed the claims once, Plaintiffs and their
counsel were undeterred and simply filed the claims
again.
Such conduct should not be countenanced. 12
Defendants rely on both federal and state law in support of
their motion for relief:
U.S.C.
§
Federal Rule of Civil Procedure 11(b), 28
1927, the court's inherent authority as recognized by the
Supreme Court in Chambers v. NASCO, 111 S. Ct. 2123
Business Organizations Code
Civil
Practices
and
§
Remedies
153.404,
Code,
(1991), Texas
Chapter 10 of the Texas
and
Texas
Rule
of
Civil
Procedure 13.
Plaintiff Michael P. Wagner acting individually, and all other
plaintiffs acting collectively through their counsel,
Kevin L.
Colbert, urge the court to deny defendants' motion for relief. 13
A.
Federal Law
1.
Rule 11 Does Not Entitle Defendants to Relief
Defendants
cite
Federal
Rule
of
Civil
Procedure
11 (b)
in
support of the argument that they are entitled to their attorney's
fees and expenses from plaintiffs, plaintiffs' counsel, and his law
firm.
Rule 11(b) authorizes courts to sanction parties who assert
or cause to be asserted claims or defenses
(1)
that are made for
12Defendants' Motion for Relief, Docket Entry No. 19, pp. 15 -16
~~ 25-26.
13See Plaintiff, Michael P. Wagner's, Response and Motion for
Relief ("Wagner's Response"), Docket Entry No. 27, and Plaintiffs'
Response to Defendants' Motion for Relief ("Plaintiffs' Response"),
Docket Entry No. 30.
-10-
any improper purpose such as to harass, cause unnecessary delay, or
needlessly
increase
the
supported by existing
cost
of
litigation;
law or by a
(2)
that
are
good-faith argument
not
for
an
extension or change in existing law; or (3) that lack evidentiary
support
or
reasonable
are
likely
opportunity
The
11 (b) (1) - (3) .
to
lack
for
evidentiary
Fed.
investigation.
purpose
of
the
rule
support
is
to
R.
after
Civ.
a
P.
"deter baseless
filings in district court," Cooter & Gell v. Hartmarx Corp., 110
S. Ct. 2447, 2454 (1990), and to insure that "victims of frivolous
lawsuits
do
not
pay
the
expensive
defending such lawsuits."
Inc.,
836 F.2d 866, 879
legal
Thomas v.
fees
associated with
Capital Security Services,
(5th Cir. 1988)
(en banc)
After notice
and opportunity to respond, courts finding a Rule 11(b) violation
must impose appropriate sanctions.
Id. at 876 (a court abuses its
discretion if it finds a Rule 11 violation and does not impose some
form
of
sanctions).
See
also
Fed.
R.
Civ.
P.
11
(c)
(1) .
Appropriate sanctions may include monetary awards in the form of
attorney's fees and expenses.
See Farguson v. MBank Houston,
N
.A. ,
808 F.2d 358, 359-60 (5th Cir. 1986).
A party seeking monetary sanctions under Rule 11 must file a
stand-alone motion describing specific sanctionable conduct,
must
comply
Rule 11
(c) (2)
with
the
safe
harbor
provisions
provided
and
by
The safe harbor provisions of Rule 11(c) (2) require
motions for sanctions to be served under Federal Rule of Civil
Procedure 5, but that the motion "not be filed or be presented to
-11-
the court if the challenged paper, claim defense, contention, or
denial is withdrawn or appropriately corrected within 21 days after
service or within another time the court sets."
These provisions
"contemplate[] service of the Rule 11 motion at least 21 days prior
to filing the motion with the court in order to give the parties at
whom the motion is directed an opportunity to withdraw or correct
the
offending
contention."
In
re
Silica
Products
Liability
Litigation, 398 F. Supp. 2d 563, 673 n.173 (S.D. Tex. 2005)
Elliott v. Tilton, 64 F.3d 213, 216 (5th Cir. 1995)).
(citing
The movant
bears the burden of showing compliance with Rule 11's safe harbor
provisions.
See Harris v. Auxilium Pharms., Inc., 664 F. Supp. 2d
711, 724 (S. D. Tex. 2009).
Plaintiffs argue that the defendants' motion for relief under
Rule 11 should be denied because defendants have not complied with
the
21-day
safe
harbor
notice
provisions
of
Rule
11 (c) (2)
.14
Defendants do not dispute that they failed to comply with the safe
harbor notice provisions of Rule 11(c) (2).
Instead,
defendants
assert that
any alleged technical failure to comply with Rule 11 does
not preclude this court from awarding sanctions under the
other authorities in Defendants' Motion for Relief,
including under 28 U.S.C. § 1927, Tex. Bus. Org. Code
§ 153.404,
the CourVs inherent authority, Tex. Civ.
Prac. & Rem. Code Chapter 10, and Tex. R. Civ. P. 13. 15
14Wagner's Response, Docket Entry No.
Response, Docket Entry No. 30, p. 3 ~ 5.
27,
~
4;
Plaintiffs'
15Defendants' Reply in Support of Motion for Relief
No. 19) ("Defendants' Reply"), Docket Entry No. 31, p. 11,
-12-
~
(Doc.
18.
Defendants filed their motion for sanctions on January 4,
2013, - two weeks after the court granted their motion to dismiss
the claims asserted in Wesolek II on December 21, 2012, and over
seven months after the court granted their motion to dismiss the
claims
asserted
in Wesolek
I
on May 18,
2012.
A motion for
sanctions filed after the case has concluded does not give the
opposing party an opportunity to correct a
filed in violation of Rule 11.
(5th Cir.
complaint allegedly
Tompkins v. Cyr, 202 F.3d 770, 778
The reasons for requiring that a copy of the
2000).
motion itself be served on the allegedly offending party is clear.
The safe harbor provisions were intended to
"protect[] litigants from sanctions wherever possible in
order to mitigate Rule 11's chilling effects, formaliz[e]
procedural due process considerations such as notice for
the protection of the party accused of sanctionable
behavior, and encourag[e] the withdrawal of papers that
violate the rule without involving the district court."
Thus, "a failure to comply with them [should] result in
the rejection of the motion for sanctions."
The Cadle Co. v. Pratt (In re Pratt), 524 F.3d 580, 587 (5th Cir.
2008)
(citations omitted).
indicates that defendants'
plaintiffs
on
the
same
Moreover,
the certificate of service
motion for relief was served on the
date
it
was
filed
with
the
court.
Defendants have not complied with Rule 11's requirement that the
motion for sanctions be served on the party sought to be sanctioned
at least 21 days before being filed with the court.
The
Fifth
Circuit
has
consistently
"held
compliance with Rule 11 is mandatory," In re Pratt,
-13-
that
strict
524 F.3d at
586-87, and that "[c]ompliance with the service requirement is a
mandatory prerequisite to an award of sanctions under Rule 11.
Id. at 586.
II
A motion for Rule 11 sanctions is appropriately denied
when the movant fails to comply with the safe harbor provisions.
Tompkins, 202 F.3d at 788; Brunig v. Clark, 560 F.3d 292, 297 (5th
Cir. 2009).
Informal notice and opportunity to withdraw is not an
adequate substitute for serving a
copy of the motion at
least
twenty-one days before filing the motion with the court.
Pratt, 524 F.3d at 586-88.
they complied with Rule 11
In re
Because defendants have not shown that
t
safe harbor provisions by serving
S
their motion for sanctions on plaintiffs, plaintiffs' counsel, and
his law firm at least 21 days before filing it with the court, no
sanctions can be imposed under Rule 11.
Brunig,
560
F.3d
at
297.
See
also
Tompkins, 202 F.3d at 778;
Elliott,
64
F.3d
at
216
(reversing imposition of sanctions where movant failed to serve
motion for sanctions on the defendants prior to filing it with the
court as required by Rule 11).
2.
Defendants Are Entitled to Relief From Plaintiff's
Counsel Under 28 U.S.C. § 1927 for Defense of Wesolek II
(a)
Plaintiffs Cannot Be Sanctioned Under
Defendants cite 28 U.S.C.
§
§
1927
1927 in support of the argument
that they are entitled to their attorney's fees and expenses from
plaintiffs, plaintiffs' counsel, and his law firm.
provides:
-14-
Section 1927
Any attorney or other person admitted to conduct cases in
any court of the United States or any Territory thereof
who
so
multiplies
the
proceedings
in
any
case
unreasonably and vexatiously may be required by the court
to satisfy personally the excess costs, expenses, and
at torneys' fees reasonably incurred because of such
conduct.
28 U.S.C. § 1927.
Thus, "[§] 1927 allows a district court to shift
fees only to counsel, not to parties."
Procter & Gamble Co. v.
Amway Corp., 280 F.3d 519, 525 (5th Cir. 2002).
See also Matta v.
May, 118 F.3d 410, 413-14 (5th Cir. 1997)
("Unlike Rule 11,
sanctions
are,
terms,
offending
attorneys;
awards.").
by
the
section's
clients
plain
may
not
be
§
1927
imposed only on
ordered
to
pay
such
Accordingly, defendants' argument that the court should
sanction plaintiffs - as opposed to plaintiffs' counsel - under 28
U.S.C.
§
1927 has no merit.
(b)
Plaintiffs' Counsel Can Be Sanctioned Under
(1)
1927
Standard of Review
The standard for awarding sanctions under
§
1927 is higher
than that applicable to Federal Rule of Civil Procedure 11.
v.
§
Military Department of Mississippi,
Cir.), cert. denied, 131 S. Ct. 287
standard of culpability than
§
597
(2010)
1927").
F.3d 678,
Bryant
694
(5th
("Rule 11 has a lower
If
§
1927 and Rule 11
sanctioned the same sort of conduct, a party could circumvent the
safe harbor requirements of Rule 11 simply by seeking sanctions
under 28 U.S.C.
§
1927.
Such a rule would undermine the safe
harbor provision of Rule 11.
Rule 11 and
-15-
§
1927 have therefore
been interpreted to apply to different kinds of conduct.
Samuels v. Wilder, 906 F.2d 272, 275 (7th Cir. 1990)
and Rule 11 are addressed to different conduct:
See
("Section 1927
the statute to
prolonging litigation, and Rule 11 to particular filings.") .
For
§
1927 to apply, the conduct mUltiplying the proceedings
must be both "unreasonable" and "vexatious."
Procter & Gamble, 280
F.3d at 525 (citing F.D.I.C. v. Calhoun, 34 F.3d 1291, 1297 (5th
Cir.
Thus,
1994)).
in addition to a
pursued were baseless,
improper motive,
§
showing that
1927 requires
the
claims
"evidence of bad faith,
or reckless disregard of the duty owed to the
court."
Id.
(quoting Edwards v. General Motors Corp.,
242,246
(5th Cir.
1998)).
Moreover,
153 F.3d
1927 only authorizes
"[§]
shifting fees that are associated with 'the persistent prosecution
of a meritless claim.'"
340,
345
(5th
Cir.
Id.
1991))
(quoting Browning v. Kramer, 931 F.2d
In
order
to
recover
all
costs
associated with an action, the moving party
must prove, by clear and convincing evidence, that every
facet of the litigation was patently meritless, . . . and
counsel must have lacked a reason to file the suit and
must wrongfully have persisted in its prosecution through
discovery, pre-trial motions, and trial.
Id. at 526 (citing National Association of Government Employees v.
National Federation of Federal Employees, 844 F.2d 216, 223
Cir. 1988), and Lewis v. Brown & Root.
Inc., 711 F.2d 1287, 1292
(5th Cir. 1983), clarified on reconsideration,
Cir.1984)).
-16-
(5th
722 F.2d 209
(5th
Recognizing the potential dampening effect that
1927 can
§
have on the legitimate zeal of counsel representing clients l the
Fifth Circuit construes the statute in favor of the party against
whom sanctions are sought.
Procter
&
(citing F.D.I.C. v. Conner, 20 F.3d 1376
Gamble
I
280 F.3d at 526
1384 (5th Cir. 1994))
1
[T]he district court must make detailed factual findings
when imposing large sanctions in a complex case with an
extensive
record.
The
court must
(1)
identify
sanctionable conduct and distinguish it from the reasons
for deciding the case on the merits l (2) link the
sanctionable conduct to the size of the sanctions and
(3)
differentiate between sanctions awarded under
different statutes.
I
Id.
The decision to
court/s discretion.
(2)
impose
1927
§
sanctions
lies within the
Edwards, 153 F.3d at 246.
Sanctions Not Warranted for Wesolek I
Section 1927 prohibits the persistent prosecution of meritless
claims.
Thomas, 836 F.2d at 875.
of claims was unreasonable
claims failed in the end.
merely the
benefit
of
I
In assessing whether maintenance
it
is not
enough that plaintiffs l
Defendants must show with more than
hindsight,
that
the
plaintiffs'
counsel
persisted in asserting claims after it became clear that the claims
lacked merit.
that
Calhoun l 34 F.3d at 1298, 1300.
plaintiffs
I
counsell s
persistence
Defendants argue
in pursuing plaintiffs
I
direct and derivative claims in Wesolek I and Wesolek II rise to
the required level of misconduct.
In
Wesolek
derivative
claims
I
the
court
dismissed
asserted against
-17-
the
the
same
defendants
direct
by the
and
same
counsel on behalf of many of the same plaintiffs as are asserted in
Wesolek II.
Although the court dismissed both the direct and the
derivative claims asserted in Wesolek I, the court is not persuaded
that
counsel's pursuit
entitles
the
of
defendants
attorney's fees.
the claims
to
Because
§
sanctions
asserted in that
in the
form
of
lawsuit
costs
or
1927 sanctions are intended to punish
attorneys who unreasonably and vexatiously persist in prosecuting
frivolous claims, such sanctions are not warranted absent a showing
that the attorney to be sanctioned persisted in prosecuting claims
after becoming aware that the claims at issue had no merit.
Procter & Gamble, 280 F.3d at 526
associated with an action under
See
(in order to recover all costs
1927,
the moving party "must
prove, by clear and convincing evidence,
that every facet of the
§
li tigation was patently meri tless,
and counsel must have
lacked a reason to file the suit and must wrongfully have persisted
in
its
trial")
prosecution
through
discovery,
pre-trial
motions,
and
Defendants do not argue and the court does not find that
"every facet" of the Wesolek I litigation was patently meritless.
(3)
Sanctions Are Warranted for Wesolek II
Plaintiffs did not appeal the court's dismissal of the claims
asserted in Wesolek I.
Instead, approximately three months after
the dismissal plaintiffs' counsel filed Wesolek II in state court.
The Original Petition filed in Wesolek II asserted the same direct
and derivative claims dismissed in Wesolek I on behalf of the same
-18-
plaintiffs and other, newly named plaintiffs.
For
§
1927 to apply
the conduct mUltiplying the proceedings must be both "unreasonable"
and "vexatious."
Procter
&
Gamble,
280 F.3d at
525.
For the
reasons stated below, the court concludes that counsel's conduct in
filing and persistently prosecuting Wesolek II through appeal to
the
Fifth
Circuit
unreasonably
and
vexatiously multiplied
the
proceedings against defendants.
(i)
Through
his
Reasonableness
involvement
ln
Wesolek
I
counsel
knew
that
plaintiffs' direct claims for common law fraud and violation of the
Texas Securities Act arising from misrepresentations made before
the plaintiffs invested in the Funds were dismissed with prejudice
under Rule 12(b) (6) for failure to plead fraud with particularity.
It
is well-settled that
"[t] he
federal
law of
res
judicata
[]
establishes that a judgment in a prior suit bars a subsequent cause
of action between the same parties not only as to all matters
litigated in the first suit, but also as to all issues that could
have
been
litigated
regarding
the
same
cause
of
action."
Commercial Box & Lumber Co., Inc. v. Uniroyal, Inc., 623 F.2d 371,
373 (5th Cir. 1980).
Counsel's reassert ion in Wesolek II of direct
claims against the defendants for common law fraud and violation of
the Texas Securities Act was unreasonable because the same claims
had been asserted and dismissed with prejudice in Wesolek I and as
such were barred by res judicata.
-19-
Through his involvement in Wesolek
plaintiffs'
I
counsel also knew that
claims for conversion, violation of the Texas Theft
Liability Act, money had and received, breach of fiduciary duty,
negligence, common law fraud, and violation of the Texas Securities
Act arising from misrepresentations made after they had invested in
the
Funds
were
claims
that
the
plaintiffs
could
only
assert
Counsel also knew that in
derivatively on behalf of the Funds.
order to state a derivative claim for which relief may be granted
plaintiffs were required to allege with particularity \\ (1)
the
effort, if any, of the plaintiff to secure initiation of the action
by a
general
effort,"
as
partner i
or
(2)
the
required by Tex.
reasons
Bus.
Wesolek I, 871 F. Supp. 2d at 628.
Org.
for
Code
not
§
making
153.043.
the
See
Although the court provided a
detailed explanation of the standard for pleading such claims in
Wesolek I,
neither the Original Petition nor the Amended Class
Action and Derivative Complaint filed in Wesolek
No.
16,
which counsel
deficiencies
for
filed without
which
the
court
II
(Docket Entry
leave of court)
dismissed
these
cured the
claims
in
Wesolek I.
Counsel's reassertion In Wesolek II
of derivative
claims
suffered
noted
that
from
the
same
deficiencies
in the
derivative claims filed in Wesolek I was therefore unreasonable.
As evidence that every aspect of this litigation was patently
meritless,
defendants refer to each of the pleadings,
including
plaintiffs' response in opposition to their motion to dismiss in
which counsel failed to cite any case or legal authority in support
-20-
of his contentions that defendants' motion to dismiss should not be
granted or that he should be allowed to replead.
Defendants also
point to the appeal of the court's dismissal of Wesolek II, which
The court agrees with
the Fifth Circuit dismissed as frivolous.
defendants that in view of the information available to counsel
when Wesolek II was filed,
under
§
prosecuted,
and appealed,
sanctions
1927 are warranted because each of the pleadings filed by
plaintiffs'
counsel unreasonably and vexatiously multiplied the
proceedings.
By
filing
and
pursuing
the
claims
asserted
in
Wesolek II, plaintiffs' counsel multiplied proceedings that should
have
concluded with the
resolution of Wesolek
I.
If
counsel
believed the outcome in Wesolek I was incorrect, he should have
sought reconsideration or filed an appeal in the Fifth Circuit.
Counsel's
actions
ln
filing
an
entirely
separate
case
were
not
only
therefore unreasonable and without any legal basis.
(ii)
The
Vexatiousness
multiplication
of
proceedings
unreasonable but also vexatious.
showing that
be
This requirement is met by a
in filing and maintaining the proceedings counsel
acted in bad. faith,
with
improper motive,
disregard of the duty owed to a court.
813, 817
must
(5th Cir. 1995).
or with a
reckless
Baulch v. Johns, 70 F.3d
The Fifth Circuit has recognized that
counsel's bad faith, improper motive, or reckless disregard may be
found from objective circumstances, Calhoun, 34 F.3d at 1300; in
-21-
other words,
Sanctions
may
inadvertence,
The
344.
it is not, strictly speaking, a subjective inquiry.
not
be
imposed,
however,
Fifth Circuit has,
mere
negligence,
Browning,
or counsel's incompetence.
for
931 F.2d at
in the past,
recognized that
an
attorney's actions may be so completely without merit that the
court
is
required
to
conclude
that
recklessly or for some improper purpose.
Campbell,
Athey
Nevertheless,
Zukowski,
&
\\ [§]
the
actions
were
taken
See McGoldrick Oil Co. v.
793 F.2d 649,
653
(5th Cir.
1927 only authorizes shifting fees
1986).
that are
associated with 'the persistent prosecution of a meritless claim.,ff
Proctor & Gamble, 280 F.3d at 525-26.
For the reasons stated in the preceding paragraphs, the court
concludes
that
the
claims
prosecuted
in
Wesolek
II
were
unreasonable and patently meritless when they were initially filed
in state court, when counsel responded to defendants' motions to
dismiss, when counsel filed an amended class action and derivative
complaint, and when counsel appealed the dismissal of Wesolek II.
Because the court's opinion in Wesolek I put counsel on notice of
the deficiencies in his pleadings that were repeated, not remedied
in Wesolek II, this is not a case in which counsel merely failed to
conduct a reasonable inquiry into the factual and legal bases for
the claims asserted in Wesolek II prior to filing the complaint.
Instead, this is a case in which counsel purposely filed patently
meritless claims for an improper purpose of harassing or annoying
the
defendants,
or,
at
a
minimum,
-22-
reli tigating claims
already
decided against his clients but not appealed.
See Columbus v.
United Pacific Insurance Co.,
712
641 F.
Supp.
707,
(S.D. Miss.
1986) (identifying complaint seeking to relitigate claims dismissed
by a prior judgment as "interposed with the improper purpose of
seeking to relitigate claims which have been foreclosed").
See
also Walker v. City of Bogalusa, 168 F.3d 237, 240 (5th Cir. 1999)
(affirming imposition of
1927 sanctions on plaintiffs'
§
for persistently prosecuting a clearly meritless claim,
counsel
i.e.,
a
civil rights claim for which plaintiffs neither alleged nor proved
discriminatory purpose,
claim) i
an essential prima facie element of the
McGoldrick Oil Co.,
793
F.2d at 653
(finding appeal so
devoid of merit as to be frivolous, and so frivolous as to warrant
the imposition of sanctions under 28 U.S.C.
§
1927 and Fed. R. App.
P. 38).
(iii)
Excessive Costs and Attorney's Fees
The liability created under
§
1927 is only for excessive costs
due to persistent prosecution of a meritless claim.
F.2d at 344.
under
§
Browning, 931
The Fifth Circuit advises courts to impose sanctions
1927 "sparingly," and cautions that except when the entire
proceeding has been unwarranted, unreasonable, and vexatious, and
should therefore not have been initiated or pursued, it will not be
appropriate under § 1927 to shift the entire financial burden of an
action's defense.
F.3d 521,
535
Meadowbriar Home for Children, Inc. v. Gunn, 81
(5th Cir. 1996)
(citing Calhoun,
-23-
-------'------'-
34 F.3d at 1297).
The
actions
undertaken
by
in
counsel
plaintiffs'
pursuing
Wesolek II after the state court action was removed to this court
evidence an intentional or reckless pursuit of claims that counsel
knew
or
Further,
should have
known
to
be
unwarranted
in
fact
or
law.
in light of the court's dismissal of the direct claims
asserted in Wesolek I with prejudice and the admonitions to counsel
regarding the deficiencies of the derivative claims asserted in
Wesolek
I,
the
court
concludes
that
the
claims
pursued
in
Wesolek II were pursued for an improper purpose of harassing and
annoying the defendants, or, at a minimum, relitigating claims that
had already been decided adversely to his clients but had not been
appealed,
and
that
counsel's
actions
in
pursing
those
claims
unreasonably and vexatiously multiplied proceedings in violation of
28 U.S.C.
1927.
§
Therefore, counsel should be sanctioned, and the
least severe sanction sufficient to deter repetitive conduct is to
hold plaintiffs' counsel liable for the attorney's fees and costs
that defendants incurred defending the meritless claims pursued in
Wesolek II.
Since plaintiffs' counsel has not disputed the reason-
ableness of the sums that defendants state they incurred defending
Wesolek II, and since for the reasons stated in
§
II.B.2, below,
the court concludes that sanctions in the form of attorney's fees
and expense are also warranted against plaintiffs' counsel under
Texas Rule of Civil Procedure 13 for filing in state court the
Original
Petition
asserting
baseless
claims
that
initiated
Wesolek II, counsel will be ordered to pay defendants the entire
-24-
amount of attorney's fees and expenses incurred defending those
baseless claims, i.e., $53,390.00 for attorney's fees and $2,412.00
for reasonable expenses. 16
(4)
Counsel's Opposition to Sanctions Lacks Merit
Plaintiffs' counsel challenges defendants' motion for relief
in the form of sanctions by arguing that plaintiffs had a good
faith argument that they satisfied the requirements for pleading
derivative claims under Texas law,17 and that defendants' motion for
relief
is
barred by
res
judicata .18
Plaintiffs' Original Petition,
Citing
~~
65
and
66
of
counsel argues that "[p]laintiffs
plead that they attempted to get the general partner, Layton Energy
16Defendants' Reply, Docket Entry No. 31, p. 11 ~ 19, and
Exhibits 1 and 2 thereto (Affidavit of Andrew R. Harvin in Support
of Motion for Relief (Exhibit 1) and Affidavit of Daniel Layton in
Support of Motion for Relief (Exhibit 2)).
This amount does not
include the attorney's fees or expenses associated with defending
plaintiffs' appeal of Wesolek I I or pursuing sanctions. The court
declines to award defendants attorney's fees and expenses incurred
defending the appeal of Wesolek I I because the court is not
persuaded that such relief is warranted since despite dismissing
plaintiffs'
appeal as frivolous,
the Fifth Circuit denied
defendants' request for such relief under Federal Rule of Appellate
Procedure 38.
The court also declines to award defendants
attorney's fees or expenses incurred pursuing sanctions because the
defendants sought sanctions under many theories that the court has
found lack merit and because "[l]itigants should be able to defend
themselves from the imposition of sanctions without incurring
additional sanctions./I
Blue v. United States Department of the
Army, 914 F. 2 d 525, 548 ( 4 t h Ci r. 1990).
17Plaintiffs' Response, Docket Entry No. 30, p. 2
18Id.
at 3
~
6.
-25-
~
4.
Texas,
LLC,
to act through its two members:
J. Clarke Legler."19
of
the
Texas
actions. "20
Counsel also argues that Section 153.401(2)
Business
'demand futility'
Daniel Layton and
Organizations
Code
"clearly
recognizes
with respect to limited partnership derivative
The
problem
allegations contained in
with
~~
65
these
arguments
and 66 of
is
that
Plaintiffs'
the
Original
Petition were not only deficient because they failed to allege with
particularity
the
facts
required
by
Texas
law
for
asserting
derivative claims, but based on the court's dismissal of virtually
identical derivative claims In Wesolek I,
counsel knew that the
derivative claims asserted in Wesolek II were also deficient.
Counsel's contention that defendants'
motion for relief is
barred by res judicata because " [d]efendants filed a substantially
similar motion in the United States Court of Appeals for the Fifth
Circuit where it was denied,"21 also lacks merit.
Unlimited,
Inc.
v.
McCain,
112
F.3d 814,
817
See Creations
(5th Cir.
1997)
(recognizing that district courts maintain jurisdiction to "rule on
a motion for ancillary attorney's fees even after the filing of a
notice of appeal with respect to the underlying claims")
v. Ehrman, 3 F.3d 931, 933 (5th Cir. 1993)
19Id.
at 2 ~ 4.
2°Id.
at 3 ~ 4.
21Id.
~ 6.
-26-
(same).
i
Topalian
3.
Defendants Are Not Entitled to Attorney's Fees Based on
the Court's Inherent Authority
When
a
party's
conduct
is
not
effectively
sanctionable
pursuant to an existing rule or statute, i.e., Rule 11 or 28 U.S.C.
§
1927, it may nevertheless be appropriate for a court to turn to
its inherent power to impose sanctions.
See Chambers v. NASCO,
Inc., 111 S. Ct. 2123 (1991); Toon v. Wachenhut Corrections Corp.,
250 F.3d 950, 952 (5th Cir. 2001)
Law Firm,
P.C.,
sanctioning
110
F.3d 290,
power
is
and
[the]
proceeding[s]
"based
Carroll v. The Jaques Admiralty
292
(5th Cir.
on
the
need
1997).
to
Inherent
control
necessity of protecting the exercise of
judicial authority in connection with those proceedings.u
937 F.2d at 1023.
court
Case,
Thus, a court's inherent power is not "a broad
reservoir of power,
ready at the
imperial hand,
but a
limited
source; an implied power squeezed from the need to make the court
function. u
NASCO, Inc. v. Calcasieu Televsion & Radio, Inc., 894
F.2d 696, 702
Inc.,
(5th Cir. 1990), aff'd sub nom., Chambers v. NASCO,
111 S. Ct. 2123
(1991).
The Supreme Court has recognized that courts have the inherent
power to impose sanctions against litigants for their bad faith
conduct and that a court may assess attorney's fees as a sanction
when a party has acted in bad faith, vexatiously, wantonly, or for
oppressive reasons.
S. Ct. at 1612.
if
such
Chambers,
111 S.
Ct.
at 2123; Alyeska,
95
The threshold for invocation is high, however, and
inherent
power
is
invoked
-27-
it
must
be
exercised with
restraint and discretion.
Maguire Oil Co. v. City of Houston, 143
F.3d 205, 209 (5th Cir. 1998).
The Fifth Circuit has held that the
court should only invoke its inherent power to sanction if it finds
that "a fraud has been practiced upon it or that the very temple of
justice has been defiled."
Boland Marine & Mfg. Co. v. Rihner, 41
F.3d 997, 1005 (5th Cir. 1995)
(citing Chambers, 111 S. Ct. 2123).
As to the court's ability to use its inherent power to shift
fees,
the general rule in federal courts - known as the "American
Rule" -
is that a prevailing party cannot recover attorney's fees
absent specific statutory authority, contractual right, or certain
special
circumstances.
Wilderness
Society,
95
See
S.
Alyeska
Ct.
1612
Pipeline
(1975)
i
Servo
Co.
Galveston
v.
County
Navigation Dist. No.1 v. Hopson Towing Co., Inc., 92 F.3d 353, 356
(5th Cir. 1996).
The Fifth Circuit has held that conduct required
to invoke this exception to the American Rule must be "callous and
recalcitrant,
arbitrary and capricious,
or willful,
persistent."
callous and
Galveston County, 92 F.3d at 358.
Judged against these standards defendants have failed to make
the required showing for an award of attorney's fees under the
court's inherent powers against either plaintiffs or their counsel.
Since the court has already concluded that plaintiffs'
should be sanctioned under 28 U.S.C.
§
counsel
1927, there is no need to
invoke the court's inherent authority to sanction him.
Although
defendants argue that plaintiffs brought this litigation for an
improper purpose, defendants have not offered any evidence capable
-28-
of proving that the plaintiffs -
as opposed to their counsel
engaged in sanctionable conduct, i.e., conduct that perpetrated a
fraud on the court, Boland, 41 F.3d at 1005, or conduct that was
"callous and recalcitrant,
callous
and
persistent."
arbitrary and capricious,
Galveston
County,
92
or willful,
F.3d
at
358.
Accordingly, the court concludes that no sanctions can be imposed
under the court's inherent authority.
B.
State Law
Defendants also argue that sanctions in the form of attorney's
fees and expenses against plaintiffs, plaintiffs' counsel and his
law
firm
are
appropriate
(1)
under:
Texas
Rule
Procedure 13; (2) Texas Business Organizations Code
§
of
Civil
153.404; and
(3) Texas Civil Practice and Remedies Code Chapter 10.
Plaintiff
Wagner argues that defendants may not rely on Texas law in support
of their motion for relief because defendants removed this action
to
federal
court. 22
Defendants
respond
that
in
cases
filed
originally in Texas state court but later removed to federal court
groundless pleadings are governed by Texas Rule of Civil Procedure
13.
See Tompkins, 202 F.3d at 787 ("The federal rules do not apply
to filings in state court,
federal court.") .23
even if the case is later removed to
Defendants also assert that because "both the
22Plaintiff, Michael P. Wagner's,
Relief, Docket Entry No. 27, ~ 7.
Response
and Motion
23Defendants' Reply, Docket Entry No. 31, pp. 7-8.
-29-
for
Wesolek
cases
were
derivative
suits
involving
partnerships both before and after removal.
u24
Code § 153.404 applies.
Texas
limited
Tex. Bus. Org.
Defendants do not dispute the contention
that chapter 10 of the Texas Civil Practices and Remedies Code is
inapplicable.
In this case removed from state court, the court considers the
applicability of sanctions under Texas Rule of Civil Procedure 13
only for the filings made in state court.
The federal rules of
civil procedure do not apply to filings in state court, even if the
case is later removed to federal court.
rules
did
not
apply,
then
nothing
If the state pleading
would
govern
the
original
pleadings in these cases, and a party who filed in bad faith might
escape any penalty.
Before imposing sanctions under Rule 13, a
court must determine that the state court pleading was groundless,
and that the pleading was brought either in bad faith or for the
purpose of harassment.
Tex. R. Civ. P. 13.
See Dike v. Peltier
Chevrolet, Inc., 343 S.W.3d 179, 183-84 (Tex. App.-Texarkana 2011,
no pet.).
"'Groundless'
means no basis in law or fact and not
warranted by good faith argument for the extension, modification,
or reversal of existing law.
859, 863
use
an
u
Harrison v. Harrison[
(Tex. App.-Houston [14th Dist.]
obj ecti ve
standard
to
determine
363 S.W.3d
2012, no pet.).
whether a
Courts
pleading
is
groundless and ask whether a reasonable inquiry was made into the
24Id.
at 8.
-30-
legal and factual bases of the claim.
Great W. Drilling, Ltd. v.
Alexander, 305 S.W.3d 688, 697 (Tex. App.-Eastland 2009, no pet.).
A
party
acts
in
bad
faith
when
he
is
on
notice
that
his
understanding of the facts may be incorrect and he does not make
reasonable
inquiry
to
ascertain
App.-Austin
facts
before
he
files
a
Robson v. Gilbreath, 267 S.W.3d 401, 407
pleading alleging them.
(Tex.
the
2008,
pet.
denied).
Bad
faith
is
not
bad
judgment or negligence; bad faith requires conscious wrongdoing for
dishonest,
Drilling,
discriminatory,
305 S.W.3d at
element of bad faith.
at 407.
fai th,
or
malicious
purposes.
Improper motive
698.
Great
W.
is an essential
Dike, 343 S.W.3d at 193; Robson, 267 S.W.3d
Courts must presume that pleadings are filed in good
and
presumption.
the
party moving
for
sanctions
must
overcome
this
GTE Communications System Corp. v. Tanner, 856 S.W.2d
725, 730-31 (Tex. 1993).
1.
Sanctions Are Not Warranted for Filing Wesolek I
For the reasons stated in
II.A.2(b) (2), above, the court has
§
already concluded that the claims asserted in Wesolek I were not
patently meritless.
Because the claims asserted in Wesolek I were
not patently meritless, the court is not persuaded that sanctions
are warranted against plaintiffs, plaintiffs' counsel, or his law
firm for filing the Original Petition that initiated Wesolek I.
2.
Sanctions Are Warranted for Filing Wesolek II
For the reasons stated in
§
II.A.2(b) (3), above, the court has
already concluded the claims that plaintiffs' counsel pursued in
-31-
-----------------_.
Wesolek II were groundless and brought to harass or annoy or, at a
minimum, for the improper purpose of relitigating claims that had
previously been decided adversely to his clients but not appealed.
Because the groundless claims pursued in Wesolek II were initially
filed
in
state
warranted
under
court,
the
Texas
court
Rule
of
concludes
Civil
that
sanctions
Procedure
13
against
plaintiffs' counsel for filing Wesolek II in state court.
however,
are
Since,
defendants have not itemized their attorney's fees and
expenses in a manner that allows the court to determine what amount
of attorney's fees and expenses were incurred solely as a result of
the need to respond to the Original Petition filed in state court,
the court is unable to determine what amount would be the least
severe sanction for this violation of Rule 13.
counsel
has
not
disputed
the
Because plaintiffs'
reasonableness
of
the
sums
that
defendants state they incurred defending Wesolek II, and since for
the reasons stated in
concludes
that
§
II .A.2 (b) (3)
sanctions
in
the
and
form
of
(4),
§
proceedings
1927
by
for
unreasonably
continuing
to
and
pursue
fees
and
counsel under 28
vexatiously
the
the court
attorney's
expenses are also warranted against plaintiffs'
u.S.C.
above,
claims
multiplying
asserted
in
Wesolek II following removal to this court, counsel will be ordered
to pay defendants the entire amount of attorney's fees and expenses
-32-
incurred defending those baseless claims,
i. e.,
$53,390.00
for
attorney's fees and $2,412.00 for reasonable expenses. 25
3.
Sanctions Are Not Warranted Against Plaintiffs
Wagner argues that \\[p]laintiffs should not be sanctioned for
things they did not know about because Attorney Colbert failed to
provide
[p]laintiffs with copies of pleadings and reports on his
court activities. ,,26
In support of his statement that plaintiffs'
attorney failed to keep him fully informed of his court activities,
Wagner
submits
authorize
an
Attorney
affidavit
Colbert
stating,
to
file
inter
and
alia,
prosecute
\\1
the
did
not
second
lawsuit, and I never gave Attorney Colbert authority (implied or
25Defendants' Reply, Docket Entry No. 31, p. 11 ~ 19, and
Exhibits 1 and 2 thereto (Affidavit of Andrew R. Harvin in Support
of Motion for Relief (Exhibit 1) and Affidavit of Daniel Layton in
Support of Motion for Relief (Exhibit 2)).
This amount does not
include the attorney's fees or expenses associated with defending
plaintiffs' appeal of Wesolek II or pursuing sanctions. The court
declines to award defendants attorney's fees and expenses incurred
defending the appeal of Wesolek II because the court is not
persuaded that such relief is warranted since despite dismissing
plaintiffs'
appeal as frivolous,
the Fifth Circuit denied
defendants' request for such relief under Federal Rule of Appellate
Procedure 38.
The court also declines to award defendants
attorney's fees or expenses incurred pursuing sanctions because the
defendants sought sanctions under many theories that the court has
found lack merit and because "[l]itigants should be able to defend
themselves from the imposition of sanctions without incurring
additional sanctions." Blue v. United States Department of the
Army, 914 F.2d 525, 548 (4th Cir. 1990).
26Wagner's Response, Docket Entry No. 27,
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~
5.
otherwise)
to violate his duties under Rule 11.1127
Wagner also
states that he does not believe that any of the other plaintiffs
have received notice from Attorney Colbert that there is a motion
pending seeking a judgment against them for sanctions on account of
his improper actions in filing and prosecuting the first and second
lawsuits. 28
that
either
Because defendants have failed to submit any evidence
contradicts
Wagner's
statements
that
he
did
not
authorize Colbert to initiate Wagner II by filing the original
petition in state court,
or from which the court could conclude
that any of the other plaintiffs either knew that the court had
dismissed Wagner I or authorized Colbert to initiate Wagner II by
filing the original petition in state court, defendants have failed
to show that any of the individual plaintiffs should be sanctioned
under Texas Rule of Civil Procedure 13.
For these same reasons,
the court concludes that plaintiffs are not individually subject to
orders
requiring
expenses under
§
them
to
153.404(e)
pay
defendants'
attorney's
fees
and
of the Texas Business Organizations
Code, which allows courts to make such awards on final judgment for
a defendant upon finding that suit was brought without reasonable
cause.
27Affidavit of Michael P. Wagner in Opposition to Defendants'
Motion for Relief (Doc. 19) and In Support of Wagner's Motion for
Relief, Docket Entry No. 28, p. 6 ~ 21.
28Id. at 5-6
~
19.
-34-
III.
Conclusions and Order
For the reasons explained above,
the court concludes that
neither sanctions nor an order to pay defendants' attorney's fees
and
expenses
should be
entered
against
any
of
the
plaintiffs
individually, but that sanctions are warranted against plaintiffs'
counsel under Texas Rule of Civil
Procedure 13
Original Petition that initiated Wesolek I I
under 28 U.S.C.
§
filing the
in state court and
1927 for unreasonably and vexatiously multiplying
proceedings
by
Wesolek
following
II
for
continuing
to
pursue
removal
plaintiffs'
counsel,
Kevin
defendants
$53,390.00
for
L.
to
the
this
Colbert,
attorney's
claims
asserted
court.
is
fees
Accordingly,
ORDERED
and
in
to
pay
$2,412.00
to
for
reasonable expenses within thirty (30) days from the entry of this
Memorandum Opinion and Order.
Defendants' Motion for Relief (Docket Entry No. 19) is GRANTED
IN PART and DENIED IN PART.
Plaintiff,
Michael
P.
Wagner's,
Motion for Relief
(Docket
Entry No. 27) seeking an order directing defendants and plaintiffs'
counsel to provide him certain documents and adding 90 days onto
the deadlines for filing responses to Defendants' Motion for Relief
1S
MOOT.
SIGNED at Houston, Texas, on this 14th
March, 2014.
SIM LAKE
UNITED STATES DISTRICT JUDGE
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