De Borja v. Razon, Case No. 3:18-cv-01131-YY
| Decision Date | 30 September 2020 |
| Docket Number | Case No. 3:18-cv-01131-YY |
| Parties | PATRICK R. DE BORJA, individually and MAKILING FARMS, INC., a Philippine corporation, Plaintiffs, v. ENRIQUE K. RAZON, JR., individually; INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., a Philippine corporation; ICTSI OREGON INC., an Oregon corporation; and JOHN AND/OR JANE DOES 1-20, Defendants. |
| Court | U.S. District Court — District of Oregon |
Plaintiffs Patrick R. de Borja ("de Borja") and Makiling Farms, Inc. ("MFI") filed suit against defendants Enrique K. Razon, Jr., International Container Terminal Services, Inc. ("ICTSI") (collectively "foreign defendants"), and ICTSI Oregon, Inc. in 2018 over four fraudulent stock transfers made in 1989 and 1991. By prior order, this court dismissed the action without prejudice under the doctrine of forum non conveniens because the Philippines constitutes an adequate alternative form, and the private and public interest factors weighed heavily toward dismissal. Findings and Recommendations, ECF# 83, adopted by Order, ECF #90.
The court deferred ruling on defendants' motion for sanctions (ECF #73), which must now be resolved. Id. at 3 n.2. Defendants move for sanctions against plaintiffs pursuant to Federal Rule of Civil Procedure 11 and the court's inherent power, claiming that the complaint was frivolous because it was barred by the statute of limitations and failed to establish personal and subject matter jurisdiction. Defs.' Mot. Sanctions 7, 14, 18, ECF #73. Defendants also contend that sanctions are warranted against both plaintiffs and their attorneys under Rule 11, the court's inherent authority, and § 1927 because they engaged in harassing motions practice with the intent to "overwhelm" defendants and this court. Id. at 21. In their response to defendants' motion, plaintiffs move for countersanctions under Rule 11 and § 1927. Pls.' Resp. Opp. Mot. Sanctions 28, ECF #75.
As the court dismissed the underlying action without addressing statute of limitations, personal jurisdiction, or subject matter jurisdiction, the court asked the parties whether it would be an abuse of discretion to decline to reach those issues when ruling on defendants' motion for sanctions, which included additional bases for sanctions. Order, ECF #92. Defendants responded that the court could and should address these issues. See Defs.' Suppl. Brief, ECF #95. Plaintiffs responded "no," but then concluded that the court "presumably must at least consider the issues to determine whether they are non-frivolous," without citing to authority reconciling their answer with this presumption. Pls.' Suppl. Brief 2-3, ECF #93.
Even where the underlying action has been dismissed, the court retains authority to decide a motion for sanctions. Willy v. Coastal Corp., 503 U.S. 131, 138 (1992); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 395-98 (1990). The imposition of sanctions is Cooter & Gell, 496 U.S. at 396.
Some authority supports the notion that a complaint may be deemed nonfrivolous for purposes of Rule 11(b) when it is dismissed without prejudice on procedural grounds. In Sussman v. Bank of Israel, 56 F.3d 450 (1995), the Second Circuit affirmed a district court's refusal to consider whether a complaint was frivolous on a Rule 11 sanctions motion after dismissing the action under forum non conveniens. The district court "declined to rule on [the defendant's] contention that the allegations of the complaint were unsubstantiated, noting that it did not reach the merits in dismissing the complaint on forum non conveniens grounds, and declining to expend more judicial resources in exploring them now." Id. at 454 (internal citation, quotation marks, and original alterations omitted). On appeal, the defendant argued that the district court abused its discretion by refusing to consider whether the complaint was frivolous for the purpose of imposing sanctions. Id. at 455-56. The Second Circuit disagreed, finding that because the dismissal was without prejudice to the merits of the claims and the plaintiff could pursue them in a different jurisdiction, the claims "must be deemed nonfrivolous" for the Rule 11 analysis. Id. at 457. Likewise, in SD Holdings, LLC v. Aircraft Owners & Pilots Ass'n, Inc., the defendant moved for Rule 11 sanctions on grounds the complaint was factually baseless. No. 3:13-CV-01296-AC, 2014 WL 3667881, at *8 (D. Or. July 22, 2014). The court dismissed the action for lack of personal jurisdiction and denied the motion for sanctions reasoning the motion should "be determined by the court ultimately deciding the merits of the action." Id. at *10. However, the court also retained jurisdiction to allow the defendants to renew their motion for sanctions if the plaintiff failed to pursue its claims in the proper jurisdiction. Id. at Here, the court also dismissed the action without prejudice under forum non conveniens. The court did not impose conditions on the dismissal, but plaintiffs were already pursuing parallel litigation in the Philippines. Unlike Sussman and SD Holdings, however, defendants' motion for sanctions does not turn solely on the merits of the claims, but instead on matters particular to suing here, i.e., subject matter and personal jurisdiction. The allegedly sanctionable conduct is independent of the merits and cannot be sanctioned by a Philippine court.
Thus, because no other court will have the opportunity to determine the propriety of plaintiffs' actions in bringing suit here, the court reaches the issues necessary to determine whether sanctionable conduct has occurred. Otherwise, potential abuses of our judicial system would go unchecked.
After reviewing hundreds of pages of briefing and examining voluminous case law, including Philippine law, the court finds that, with respect to defendants' motion for sanctions (ECF #73), the complaint is legally and factually baseless from an objective perspective for lack of subject matter jurisdiction and no reasonable and competent inquiry was made into subject matter jurisdiction. Because a hearing will assist the court in exercising its discretion whether to award sanctions, the court orders a hearing on that issue. Plaintiffs' motion for countersanctions (ECF #75) is denied, for the reasons discussed below.1
The court has authority to sanction both litigants and attorneys under Rule 11 and its inherent power. Additionally, 28 U.S.C. § 1927 provides the court with authority to sanction attorneys. An "entry of sanctions is reviewed for an abuse of discretion." Primus Automotive Fin. Services, Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997).
Rule 11 governs papers filed with the court. Chambers v. NASCO, Inc., 501 U.S. 32, 41 (1991).
Rule 11 sanctions are governed by "an objective standard of reasonable inquiry." Chambers, 501 U.S. at 47. The court considers whether the complaint is legally or factually baseless from an "objective perspective." Christian v. Mattel, Inc., 286 F.3d 1118, 1131 (9th Cir. 2002).
Under Rule 11, motions for sanctions "must be made separately from any other motion and must describe the specific conduct that allegedly violates Rule 11(b)." FED. R. CIV. P. 11(c)(2). The rule also contains a safe harbor: the party served with the motion must be given 21 days after service to withdraw or correct the challenged conduct. Id.
Section 1927 provides that "[a]ny 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 attorneys' fees reasonably incurred because of such conduct." 28 U.S.C. § 1927. This statute only applies to attorneys. Chambers, 501 U.S. at 41.
"To impose sanctions under section 1927, the court must make a finding of bad faith." Chao v. Westside Drywall, Inc., 709 F. Supp. 2d 1037, 1080 (D. Or. 2010), as amended (May 13, 2010) (citing West Coast Theater Corp. v. City of Portland, 897 F.2d 1519, 1528 (9th Cir. 1990)). Bad faith is present when an attorney knowingly or recklessly raises a frivolous argument or argues a meritorious claim to harass an opponent. Id. (citing Soules v. Kauaians for Nukolii Campaign Comm., 849 F.2d 1176, 1185-86 (9th Cir. 1988)).
"Federal courts possess certain 'inherent powers,' not conferred by rule or statute, 'to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.'" Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186 (2017) (quoting Link v. Wabash R. Co., 370 U.S. 626, 630-31 (1962)). "That authority includes 'the ability to fashion an appropriate sanction for conduct which abuses the judicial process.'" I...
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