Aubrey et al v. Barlin et al

Filing 767

ORDER GRANTING 760 Motion for Reconsideration ; GRANTING 761 Motion for Reconsideration; MOOTING 766 Motion for Reconsideration. This Courts April 18, 2016 Order granting Motions for Sanctions and Attorney Fees is VACATED. (Dkt. # 757.) Signed by Judge David A. Ezra. (dm)

THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
STEVEN B. AUBREY
and BRIAN E. VODICKA,
Plaintiffs,
vs.
PETER E. BARLIN, GREGORY
H. LAHR, SANDRA F. GUNN,
Defendants.

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1-10-CV-076-DAE

ORDER: (1) GRANTING MOTIONS FOR RECONSIDERATION;
(2) VACATING SANCTIONS ORDER; AND (3) MOOTING MOTION
FOR SUPPLEMENTAL RELIEF
Before the Court are two Motions for Reconsideration of this Court’s
April 18, 2016 Sanctions Order (Dkt. # 757), filed on April 27, 2016, by both
Plaintiff Steve Aubrey (Dkt. # 760), and by attorney Brian Zimmerman and the
Law Firm of Zimmerman, Axelrad, Meyer, Stern, & Wise, P.C. (collectively,
“Movants”) (Dkt. # 761). On May 3, 2016, Defendant Peter Barlin timely
responded to each Motion for Reconsideration (Dkts. ## 764, 765). The same day,
Movants filed a Supplemental Motion for Relief. (Dkt. # 766.)
For the reasons stated below, the Motions for Reconsideration filed by
Aubrey and Movants are GRANTED (Dkts. ## 760, 761). This Court’s April 18,

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2016 Sanctions Order is VACATED (Dkt. # 757), and Defendant Peter Barlin,
Sandra Gunn, and Gregory Lahr’s (collectively, “Defendants”) Motions for
Sanctions are DENIED (Dkts. ## 716, 717). Barlin’s Motion for Attorney Fees is
DENIED (Dkt. # 744). Movants’ Supplemental Motion for Relief is DENIED AS
MOOT (Dkt. # 766).
BACKGROUND
On April 18, 2016, this Court awarded sanctions against Plaintiffs
Steven Aubrey and Brian Vodicka (collectively “Plaintiffs”), and their attorney
Brian Zimmerman, after conducting a Rule 11(b) sanctions analysis pursuant to the
Private Securities Litigation and Reform Act (“PSLRA”) (Dkt. # 757). However,
at the time the Court issued its order, it was unaware that the Defendants had failed
to comply with the “safe harbor” provisions set forth by Federal Rule of Civil
Procedure 11(c)(2). (See Dkt. # 722 at 5–6.) Accordingly, the Court reconsiders
its order.
LEGAL STANDARD
I.

Motion for Reconsideration Under Rule 59(e)
Movants moved for reconsideration under Rule 60(b) of the Federal

Rules of Civil Procedure. (Dkt. # 761.) However, “[a] motion asking the court to
reconsider a prior ruling is evaluated . . . as a motion . . . under Rule 59(e) . . .
[when] filed within twenty-eight days after the entry of judgment.” Demahy v.
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Schwarz Pharma, Inc., 702 F.3d 177, 182 n.2 (5th Cir. 2012). Movants’ and
Aubrey’s motions for reconsideration were filed within this twenty-eight day
period, and Rule 59(e) will be applied here.
“A Rule 59(e) motion calls into question the correctness of a
judgment.” Templet v. Hydrochem, Inc., 367 F.3d 473, 478 (5th Cir. 2004).
“Under Rule 59(e), amending a judgment is appropriate (1) where there has been
an intervening change in the controlling law; (2) where the movant presents newly
discovered evidence that was previously unavailable; or (3) to correct a manifest
error of law or fact.” Demahy, 702 F.3d at 182. Rule 59(e), however, is “not the
proper vehicle for rehashing evidence, legal theories, or arguments that could have
been offered or raised before entry of judgment,” Templet, 367 F.3d at 478, and it
“should not be used to . . . re-urge matters that have already been advanced by a
party.” Nationalist Movement v. Town of Jena, 321 F. App’x 359, 364 (5th Cir.
2009). Reconsideration of a previous order is “an extraordinary remedy that
should be used sparingly.” Id.
II.

Safe Harbor Provision of Rule 11
Federal Rule of Civil Procedure 11, which sets forth the procedure for

notice and sanctions, contains a safe harbor provision requiring that any motion for
sanctions “be served under Rule 5, but it must not be filed or be presented to the
court if the challenged paper, claim, defense, contention, or denial is withdrawn or
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appropriately corrected within 21 days after service . . .” Fed. R. Civ. P. 11(c)(2);
see Tompkins v. Cyr, 202 F.3d 770, 788 (5th Cir. 2000). “Compliance with the
service requirement is a mandatory prerequisite to an award of sanctions under
Rule 11.” In re Pratt, 524 F.3d 580, 586 (5th Cir. 2008); see also Standard Ins. Co.
v. Cooper-Pipkins, No. 3:08–cv–0746, 2008 WL 5000044, at *2 (N.D. Tex. Nov.
24, 2008) (“[T]he ‘safe harbor’ procedure is deemed a mandatory procedural
prerequisite to seeking Rule 11 sanctions.”).
Where the party seeking sanctions does not “comply with this
procedural prerequisite . . . the sanction and payment of costs and attorneys’
fees . . . cannot be upheld under Rule 11.” Elliott v. Tilton, 64 F.3d 213, 216 (5th
Cir. 1995). “Informal notice . . . is not an adequate substitute” for compliance with
the Rule 11 “safe harbor” provision. Cappa Fund III, LLC v. Actherm Holding,
A.S., No. 3:10–cv–897, 2011 WL 817384, at *2 (N.D. Tex. Feb. 21, 2011). While
some circuits have permitted courts to shift away from this strict rule in the context
of the PSLRA, the rule in the Fifth Circuit is clear: even where a party moves for
sanctions under the mandatory review provision of the PSLRA, it must first
comply with the “safe harbor” provision of Rule 11. Compare Brunig v. Clark,
560 F.3d 292, 298 n. 22 (5th Cir. 2009) (explaining that the PSLRA “defers to the
procedural rule . . . that courts shall impose sanctions ‘in accordance with Rule
11’” and requiring parties to file a procedurally appropriate motion “despite the
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PSLRA’s presumption in favor of attorneys’ fees”), with ATSI Comm., Inc. v.
Shaar Fund, Ltd., 579 F.3d 143, 152 (2d Cir. 2009) (finding that the PSLRA’s
instruction that the court conduct a Rule 11(b) review at the conclusion of litigation
involving private actions arising under securities laws “is the functional equivalent
of the forewarning given litigants by the pendency of a Rule 11 finding”).
ANALYSIS
Here, Defendants failed to demonstrate to the Court that they
complied with the “safe harbor” provision of Rule 11 by serving copies of their
Motions for Sanctions on the Plaintiffs at least twenty-one days prior to filing the
motions for sanctions with the Court (Dkts. ## 716, 717). Though Plaintiffs were
likely aware that Defendants planned to move for sanctions at the conclusion of the
trial based upon their previous motions for sanctions, the Fifth Circuit has not ruled
that the PSLRA creates an exception to Rule 11’s strict “safe harbor” rule. In re
Pratt, 524 F.3d at 586 (holding that informal notice is insufficient to satisfy the
procedural requirements of Rule 11 or Federal Rule of Bankruptcy Procedure
9011); Florance v. Bush, 2010 WL 2710665, at *2 (N.D. Tex. June 24, 2010)
(explaining that the safe harbor provision of Rule 11 “is strictly construed and
substantial compliance is insufficient”). While there is no question that the
conduct warrants sanctions, this Court has no option but to ultimately deny the
request.
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CONCLUSION
For the reasons stated above, the Motions for Reconsideration are
GRANTED (Dkts. ## 760, 761). Movants’ Supplemental Motion for Relief is
DENIED AS MOOT (Dkt. # 766). This Court’s April 18, 2016 Order granting
Motions for Sanctions and Attorney Fees is VACATED. (Dkt. # 757.)
Defendants’ Motions for Sanctions are DENIED (Dkts. ## 716, 717). Barlin’s
Motion for Attorney Fees is DENIED (Dkt. # 744).
IT IS SO ORDERED.
DATED: Austin, Texas. May 5, 2016.

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David Alan Ezra
Senior United States Distict Judge

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