Khan v. Wells Fargo Bank NA et al

Filing 38

MEMORANDUM AND ORDER (Signed by Judge Nancy F Atlas) Parties notified.(sashabranner, 4)

United States District Court
Southern District of Texas

ENTERED
February 13, 2017

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
SHAHNAZ KHAN,
Plaintiff,
v.
WELLS FARGO BANK, NA, et al.,
Defendants.

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David J. Bradley, Clerk

CIVIL ACTION NO. 4:15-3210

MEMORANDUM AND ORDER
This mortgage foreclosure case is before the Court on the Motion for
Reconsideration (“Reconsideration Motion”) [Doc. # 34] filed by Defendant Wells
Fargo Bank, N.A. (“Wells Fargo”). The Court issued a Memorandum and Order
[Doc. # 33] on October 21, 2016, denying sanctions against Vy Nguyen
(“Nguyen”), counsel for Plaintiff Shahnaz Khan (“Khan”), sought by Wells Fargo
pursuant to Federal Rule of Civil Procedure 11 (“Sanctions Motion”) [Doc. # 9].1
Nguyen has responded to the Reconsideration Motion [Doc. # 36], and Wells
Fargo has replied [Doc. # 37].
1

The Reconsideration Motion is ripe for decision.

In the Memorandum and Order [Doc. # 33], the Court denied Wells Fargo’s
Sanctions Motion [Doc. # 9] because the Court erroneously believed Wells Fargo
had not given Nguyen pre-filing notice of the Sanctions Motion, as required under
Federal Rule of Civil Procedure 11. See Fed. R. Civ. P. 11(c)(2). Wells Fargo
correctly pointed out in its Reconsideration Motion [Doc. # 34] that it had, in fact,
given the mandated notice.

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After carefully considering the parties’ briefing on the Reconsideration and the
Sanctions Motions, all matters of record, and the applicable legal authorities, the
Court hereby grants the Reconsideration Motion, vacates the October 21, 2016
Memorandum and Order, and incorporates the results of its new analysis in this
Memorandum and Order.
I.

BACKGROUND
Plaintiff Khan resides at 1907 Ray Shell, Taylor Lake Village, Harris

County, Texas 77586 (the “Property”). She is the mortgagor of the Property and
Wells Fargo is the successor mortgagee.

Khan has, in connection with the

mortgage at issue, initiated a total of four lawsuits and six bankruptcy proceedings.
Nguyen represented Khan in the two most recent lawsuits and in all but the first
bankruptcy proceeding.2 This action was Khan’s fourth lawsuit against Wells
Fargo to delay foreclosure on the Property.

2

Khan first filed for bankruptcy on July 15, 2008. The first bankruptcy, with which
Nguyen was not involved, preceded any litigation and closed with a discharge of
Khan’s debts. Nguyen represented Khan in the five bankruptcy cases that
followed: the bankruptcy case filed on December 16, 2013 (the “Second
Bankruptcy”), dismissed on January 2, 2014; one filed on January 14, 2014 (the
“Third Bankruptcy”), dismissed on January 30, 2014; one filed on April 8, 2014
(the “Fourth Bankruptcy”), dismissed on June 2, 2014; a bankruptcy filed on
November 2, 2015 (the “Fifth Bankruptcy”), dismissed on December 21, 2015;
and, last, the bankruptcy filed on January 4, 2016 (the “Sixth Bankruptcy”), which
was dismissed on June 30, 2016. Nguyen commenced the Second and Third
Bankruptcies during the Third Lawsuit. As described below, she filed the Fifth
and Sixth Bankruptcies during the Fourth Lawsuit—forcing, in each case, the
(continued…)
2

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On August 31, 2012, Khan, represented by Andrew Bayley, filed a lawsuit
in Texas state court seeking a declaratory judgment and temporary restraining
order against Wells Fargo to prevent foreclosure on the Property (the “First
Lawsuit”).3 Khan sued under the theory that Wells Fargo was not the proper
mortgagee, but Wells Fargo showed that it had acquired the mortgage through a
merger. The parties agreed that Khan would non-suit her claims with prejudice
and would retain the money she had posted as bond for the requested temporary
restraining order. Wells Fargo agreed to review her mortgage to determine if Khan
was eligible for loan modification. The First Lawsuit was dismissed with prejudice
on September 27, 2012.
In August 2013, Khan, represented by James M. Anderson, filed a lawsuit
against Wells Fargo in Texas state court (the “Second Lawsuit”), again seeking a
temporary restraining order against Wells Fargo. Wells Fargo removed to federal

(continued…)
court to stay the lawsuit pending resolution of the bankruptcy proceedings. All
bankruptcy proceedings Nguyen initiated for Khan were dismissed for failure to
comply with applicable document filings. See infra pages 4-7.
Nguyen initially represented Khan with respect to the Sixth Bankruptcy
proceeding but was, on Khan’s motion, replaced by another attorney on April 14,
2016. See infra note 7.
3

Wells Fargo subsequently removed the First Lawsuit to a federal district court.
3

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court on August 9, 2013. The Second Lawsuit was dismissed without prejudice on
August 19, 2013.
On October 30, 2013, Khan, represented by Nguyen, filed a lawsuit against
Wells Fargo in Texas state court (the “Third Lawsuit”). In her petition, Khan
stated that she “only wishes to have proof of standing and ownership” from Wells
Fargo over the mortgage. Khan, through counsel Nguyen, acknowledged in the
petition in the Third Lawsuit that the First Lawsuit was non-suited with prejudice.
The Third Lawsuit was stayed because Khan, represented by Nguyen, twice filed
for bankruptcy. Following dismissal of each bankruptcy case, the Third Lawsuit
was reactivated. On April 2, 2015, the state court granted summary judgment, and
dismissed the Third Lawsuit with prejudice. The court denied Wells Fargo’s
motion for sanctions against Nguyen because the court found an absence of
evidence to support a finding of bad faith.
On October 30, 2015, Khan, again represented by Nguyen, filed the action in
this Court (the “Fourth Lawsuit”). Khan again sought “proof of standing and
ownership” from Wells Fargo in its capacity as mortgagee. The causes of action
were identical to those dismissed with prejudice in the Third Lawsuit. Khan also
named as defendants Gary Bradley, the loan Trustee, and Barrett Daffin Frappier
Turner & Engel, LLP (“Barrett Daffin”), the debt collector’s law firm.
Barrett Daffin and Wells Fargo moved to dismiss this lawsuit for failure to
4
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state a claim on, respectively, November 23 and 24, 2015. Wells Fargo cited res
judicata as a ground for the dismissal.4 On December 16, 2015, Khan informed the
Court in her response to the motions that she, represented by Nguyen, had filed
what was Khan’s Fifth Bankruptcy weeks earlier.5
On December 14, 2015, one week before the Fifth Bankruptcy was
dismissed, Wells Fargo sent Nguyen a copy of the Sanctions Motion demanding
$3,734.70, or such other amount the Court deems appropriate, in attorney’s fees,
other reasonable and necessary expenses, and such other and further relief to which
it may be entitled. See Sanctions Motion [Doc. # 9]. In an accompanying letter,
Wells Fargo advised Nguyen that it would file the Sanctions Motion with the Court
on January 4, 2016, if Khan, through Nguyen, did not dismiss the Fourth Lawsuit
with prejudice. See Letter from Kurt Lance Krolikowski to Vy Nguyen, dated
December 14, 2015, Exh. B to Reconsideration Motion [Doc. # 34-2]. Rather than
dismiss the Fourth Lawsuit on January 4, 2016, Khan, through Nguyen, filed the
Sixth Bankruptcy without notice to the Court or, apparently, to Wells Fargo. Wells
Fargo filed the Sanctions Motion that day.
4

Both Wells Fargo and Barrett Daffin subsequently also challenged the Court’s
subject matter jurisdiction, but did not move to dismiss on this basis. See Barrett
Daffin Advisory [Doc. # 8] and Wells Fargo Advisory [Doc. # 11]. Khan never
served Bradley with process in this suit.

5

See supra note 2.
5

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On January 25, 2016, the day of the scheduled initial pretrial conference,
Khan filed a notice informing the Court of the Sixth Bankruptcy [Doc. # 14].
Nguyen failed to appear for the January 25 conference and had to be reached
telephonically by the Court. The Court warned Nguyen that, though it would stay
the Sanctions Motion pending resolution of the Sixth Bankruptcy, Nguyen’s
actions in connection with the case—namely, filing frivolous pleadings and
pleadings without legal substance—were problematic, and potentially exposed her
personally to sanctions. Further, in reference to the First and Third Lawsuits—the
latter of which rested on identical causes of action to those in the Fourth Lawsuit—
the Court pointed out that Nguyen was on notice of existing res judicata issues
arising from the dismissals of the First and Third Lawsuits. The Court instructed
Nguyen that she would have to respond substantively to the Sanctions Motion
within fourteen days of the Sixth Bankruptcy’s resolution.6
The Sixth Bankruptcy was dismissed on June 30, 2016, after Khan filed an

6

During the January 25 conference, Nguyen informed the Court that the multiple
bankruptcy proceedings had each failed due to “scheduling issues,” but that she
and her client intended to bring the Sixth Bankruptcy to completion. See
Transcript of January 25 Conference, Exh. C to Wells Fargo’s Motion to
Reinstate, [Doc. # 23-3], at 5:2-11. Nguyen did not address the issue of res
judicata during the January 25 conference.
6

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inadequate plan (the “Plan”).7 The Bankruptcy Court explained:
The instant case is Debtor’s fifth Chapter 13 case in three years. Each
of the previous cases was dismissed based on Debtor’s failure to
comply with applicable filing requirements. The delay to creditors
occasioned by Debtor’s multiple filings has enabled her to continue to
own a luxury home without paying the mortgage. The court
concludes that the instant case should be dismissed.
In re Khan, No. 16-30033-H3-13, at 4-5 (Bankr. S.D. Tex. June 30, 2016).
On May 26, 2016, more than five months after Wells Fargo served Nguyen
with a copy of the Sanctions Motion, Nguyen moved to dismiss with prejudice all
of Khan’s claims against Wells Fargo [Doc. # 22].8 On July 21, 2016, the Court
reactivated this action and granted the motion to dismiss [Docs. # 24, # 26]. The

7

Nguyen commenced the Sixth Bankruptcy on Khan’s behalf on January 4, 2016.
It is unclear whether Nguyen counseled Khan with respect to the Plan ultimately
rejected as deficient; Nguyen was not Khan’s attorney at the time the Plan was
filed with the Bankruptcy Court. Khan moved on March 21, 2016, to substitute
another lawyer for attorney Nguyen in the Sixth Bankruptcy. The Bankruptcy
Court granted the request on April 14, 2016. (On June 3, 2016, the substituting
attorney moved to withdraw, citing irreconcilable differences with Khan as to
conduct of the Sixth Bankruptcy). The amended Chapter 13 Plan was submitted to
the Bankruptcy Court on March 28, 2016. Nonetheless, this Court agrees with the
Bankruptcy Court that the Sixth Bankruptcy is part of an established pattern that
Nguyen shepherded through the legal system, at least starting in 2013.

8

On February 23, 2016, while the Fourth Lawsuit was stayed and the Sixth
Bankruptcy was pending, Nguyen had moved to dismiss with prejudice all of
Khan’s claims against Barrett Daffin [Doc. # 19]. The motion was granted after
dismissal of Khan’s Sixth Bankruptcy. See Doc. # 25.
The Court also dismissed without prejudice the claims against Defendant Gary
Bradley [Doc. # 27] because Khan had presented no evidence of service and no
indicated intent to pursue these purported claims.
7

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Court ordered Nguyen to respond to the Sanctions Motion on or before August 4,
2016 [Doc. # 24]. Nguyen failed to meet this deadline. After Wells Fargo pointed
out that Nguyen had not filed an opposition to the Sanctions Motion [Doc. # 28],
Nguyen requested an extension of time to file a response [Doc. # 29].

She

responded on August 10, 2016 [Doc. # 31].
II.

DISCUSSION
Courts may impose sanctions on parties or individuals pursuant to various

Federal Rules of Civil Procedure, statutes, and legal doctrines. See, e.g., FED. R.
CIV. P. 11, 26(g), 37; 28 U.S.C. § 1927; Chambers v. NASCO, Inc., 501 U.S. 32, 42
n.8 (1991) (providing examples). Wells Fargo relies solely on Federal Rule of
Civil Procedure 11.
Federal Rule of Civil Procedure 11(b) provides:
By presenting to the court a pleading, written motion, or other
paper—whether by signing, filing, submitting, or later advocating it—
an attorney or unrepresented party certifies that to the best of the
person’s knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances:
(1) it is not being presented for any improper purpose, such as to
harass, cause unnecessary delay, or needlessly increase the cost of
litigation;
(2)
the claims, defenses, and other legal contentions are warranted
by existing law or by a nonfrivolous argument for extending,
modifying, or reversing existing law or for establishing new law;

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(3) the factual contentions have evidentiary support or, if
specifically so identified, will likely 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 belief or a
lack of information.
The purpose of Rule 11 is to “deter baseless filings in district court.” Cooter
& Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990).9 If a party intends to seek
sanctions under Rule 11, the party must grant the alleged offender a “safe harbor”
by serving the motion on the offending party at least 21 days before filing with or
otherwise presenting the motion to the court. FED. R. CIV. P. 11(c)(2). After notice
and opportunity to respond, courts finding a Rule 11(b) violation may impose
appropriate sanctions. See FED. R. CIV. P. 11(c)(1). The Court may consider
Rule 11 sanctions in a case after a judgment on the merits. See Cooter & Gell, 496
U.S. at 395; see also Ratliff v. Stewart, 508 F.3d 225, 231 (5th Cir. 2007); Willy v.
Coastal Corp., 855 F.2d 1160, 1172 (5th Cir. 1988) (noting that courts retain
authority to award sanctions, despite the lack of subject matter jurisdiction over a
case). Thus, the Court’s dismissal of Plaintiff Khan’s claims against Wells Fargo
with prejudice does not preclude issuance of sanctions.
9

Cooter was superseded in part by the 1993 Amendments to Federal Rule of Civil
Procedure 11(c). The Rule change is not relevant to the proposition for which the
case is cited.
9

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After providing Nguyen the Rule 11 “safe harbor” period, Wells Fargo filed
the Sanctions Motion [Doc. # 9]. Wells Fargo argues that Nguyen violated Rule
11 by filing the Fourth Lawsuit, in which she assisted Khan to assert claims
Nguyen knew previously had been dismissed with prejudice in the First and Third
Lawsuits. Nguyen responds that she did not violate “the Federal Rules of Civil
Procedure” because: Khan’s complaint filed in the First Lawsuit was not
groundless; Khan’s attorney in the First Lawsuit did not explain the significance of
a non-suit with prejudice to Khan; Khan was unaware that her attorney had filed a
non-suit with prejudice; and counsel for Wells Fargo bullied Khan’s attorneys,
including Nguyen.10
Nguyen’s arguments are meritless. In filing the Fourth Lawsuit, Nguyen
ignored two prior dismissals with prejudice of the very claims asserted in this case.
The doctrine of res judicata precludes multiple lawsuits on the same causes of
action. See United States v. Davenport, 484 F.3d 321, 325-26 (5th Cir. 2007).
Under the doctrine, “a final judgment on the merits bars further claims by parties
or their privies based on the same cause of action.” Id. at 326 (quoting Montana v.
United States, 440 U.S. 147, 153 (1979)). The Fifth Circuit determines whether
two suits involve the same claim or cause of action by applying the transactional
10

See generally Vy Nguyen Response to Defendant’s Motion for Sanctions [Doc.
# 31].
10

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test of the Restatement (Second) of Judgments, § 24, which turns on “whether the
two cases under consideration are based on ‘the same nucleus of operative facts.”
Id. at 326 (quoting In re Southmark Corp., 163 F.3d 925, 934 (5th Cir. 1999)).
Independent of any argument Nguyen may assert regarding the effect of the nonsuit with prejudice of the First Lawsuit, it is undisputed that Nguyen was counsel
in the Third Lawsuit, which was dismissed with prejudice on April 2, 2015, just
months before Nguyen filed the Fourth Lawsuit, and which created a final
judgment with respect to the claims presented in the Fourth Lawsuit. Moreover,
the Petition in the Third Lawsuit alleged that the First Lawsuit had also been
dismissed with prejudice. Nguyen, who filed both the Third and Fourth Lawsuits,
knew or should have known the basic legal tenets of res judicata. Nevertheless, she
ignored the dismissal of the Third Lawsuit.
Nguyen also has delayed resolution of the issues regarding foreclosure on
the deed of trust on the Property by repeatedly filing bankruptcies on behalf of
Khan without completing the reorganization or discharge process. Together with
her disregard of res judicata, this course of conduct suggests an egregious pattern
of harassment and purposeful unwarranted delay. See Hall v. Chase Home Fin.,
LLC, No. A–10–CA–206–SS, 2010 WL 2732404, at *1 (W.D. Tex. July 8, 2010)
(imposing sanctions on plaintiff under Federal Rule of Civil Procedure 11 because
filing of the case, which was barred by res judicata, “is clearly intended to harass
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the opposing parties and delay the inevitable foreclosure of property in question.”)
There simply was no excuse for Nguyen’s pursuit of Khan’s duplicative and barred
causes of action. Nguyen’s conduct violated Federal Rule of Civil Procedure 11
and merits the sanctions sought by Wells Fargo.
At the time Wells Fargo filed its Sanctions Motion [Doc. # 9], it had
incurred attorney’s fees in the amount of approximately $3,734.70 in defending
itself against Plaintiff Khan’s claims asserted in this case. Pursuant to Federal
Rule of Civil Procedure 11, the Court sanctions Nguyen in that amount. The Court
also requires Nguyen to complete 30 hours of continuing legal education to include
coursework covering federal procedure and bankruptcy.11
III.

CONCLUSION AND ORDER
For the foregoing reasons, it is hereby
ORDERED that Defendant Wells Fargo’s Motion for Reconsideration

[Doc. # 34] is GRANTED. It is further
ORDERED that Defendant Wells Fargo’s Motion for Sanctions [Doc. # 9]
is GRANTED. It is further
11

Although Wells Fargo did not seek sanctions on any ground other than Rule 11,
the Court notes that 28 U.S.C. § 1927 also would support the sanctions requested.
See Cambridge Toxicology Grp., Inc. v. Exnicios, 495 F.3d 169, 180-81 (5th Cir.
2007) (“Section 1927 requires ‘evidence of bad faith, improper motive, or reckless
disregard of the duty owed to the court.’” (quoting Procter & Gamble Co. v.
Amway Corp., 280 F.3d 519, 525 (5th Cir. 2002))).
12

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ORDERED that Wells Fargo is awarded attorneys’ fees and costs against
Vy Nguyen in the total amount of $3,734.70, which must be paid within thirty (30)
days of the entry of this Memorandum and Order. It is further
ORDERED that Vy Nguyen must complete within one year of entry of this
Memorandum and Order 30 hours of continuing legal education focused on federal
civil procedure and bankruptcy.
SIGNED at Houston, Texas, this13thday of February, 2017.
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NAN Y F. ATLAS
SENIOR UNI
STATES DISTRICT JUDGE

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