Castro & Co. v. Diamond Offshore Servs. Ltd.
Decision Date | 29 October 2018 |
Docket Number | No. 3:18-cv-574-M,3:18-cv-574-M |
Court | U.S. District Court — Northern District of Texas |
Parties | CASTRO & CO., LLC, Plaintiff, v. DIAMOND OFFSHORE SERVICES LIMITED, Defendant. |
Defendant Diamond Offshore Services Limited ("Diamond") has filed a Motion for Rule 11 Sanctions, see Dkt. No. 27 (the "Second Rule 11 Motion"), seeking "an order sanctioning plaintiffs, Johann Rabe and Castro & Co., LLC (Plaintiffs), plaintiffs' counsel, Mr. Joshua S. Milam, and Castro & Co.'s principal, John A. Castro (Castro)" - whom Diamond collectively refers to as "Plaintiffs' Team" - under Federal Rule of Civil Procedure 11(b)(1)-(4) and 11(c)(1), id. at 1.
Diamond explains that "[t]he grounds for this motion are that Castro & Co., Rabe, Castro, and Mr. Milam have presented pleadings for an improper purpose, namely (1) harassment and the causing of unnecessary expense for defendant, (2) claims or other legal contentions not warranted by existing law or for establishing new law, (3) factual contentions that do not have and/or are unlikely to have evidentiary support," and Diamond "asks the Court to dismiss plaintiffs' complaint and to impose monetary sanctions on plaintiffs, plaintiffs' principal, and plaintiffs' counsel in an amount to be determined by the Court to be just and equitable under the circumstances." Id. (footnotes omitted).
Chief Judge Barbara M. G. Lynn referred the Second Rule 11 Motion to the undersigned United States magistrate judge for a hearing, if necessary, and for recommendation or determination under 28 U.S.C. § 636(b). See Dkt. No. 29.
Plaintiffs Castro & Co., LLC and Johann Rabe (together, "Plaintiffs") filed a response, see Dkt. No. 30, and Diamond filed an untimely reply, see Dkt. No. 31; N.D. TEX. L. CIV. R. 7.1(e).
For the reasons explained below, the Court should deny Defendant Diamond Offshore Services Limited's Motion for Rule 11 Sanctions [Dkt. No. 27].
On March 12, 2018, Plaintiff Castro & Co., LLC ("Castro & Co.") filed its Original Complaint against Diamond Offshore Services Limited, Jane Munoz, and Emily Rosenburg, alleging causes of actions for Failure to Comply with 26 CFR 31.6051-1 and Tortious Interference with an Existing Contract. See Dkt. No. 1. Castro & Co., LLC sought "an award of attorney's fees, litigation costs, administrative costs, expenses, and any other permissible amount to the furthest extent legally permissible under Texas Law"; "an injunction, ordering Defendants to comply with federal law and issue the corrected form W-2s to Johann Rabe"; "actual compensatory damages in the amount of $100,000.00 for the Defendants' Tortious Interference with an Existing Contract"; and "judgement for such sums in addition to pre- and post-judgment interest, costs of court, and such other and any other relief to which he may be entitled." Id. at 6; see also id. ( ).
On March 16, 2018, Plaintiff Castro & Co., LLC filed a Notice of Voluntary Dismissal that dismissed Defendants Jane Munoz and Emily Rosenburg. See Dkt. No. 4.
On April 25, 2018, Diamond filed a Motion to Expedite Defendant Diamond Offshore Services Limited's Motion for Rule 11 Sanctions. See Dkt. No. 12. It attached a draft Motion for Rule 11 Sanctions against Plaintiff Castro & Co., LLC, Plaintiffs' counsel Joshua S. Milam, and Castro & Co.'s principal John A. Castro that Diamond's counsel served by email on April 12, 2018. See Dkt. No. 12-1.
On April 27, 2018, Plaintiffs Castro & Co., LLC and Johann Rabe filed a First Amended Complaint against only Diamond, alleging causes of actions for Declaratory and Injunctive Relief, Tortious Interference with an Existing Contract, Violation of 26 U.S.C. § 7434, Failure to Comply with 26 CFR 31.6051-1, Common Law Fraud, and Constructive Fraud. See Dkt. No. 14. "Plaintiffs seek the recovery of: (a) all of their general, actual, special, and consequential damages, specifically including, without limitation, Mr. Rabe's lost wages and Castro's lost profits from its contract with Mr. Rabe; (b) costs of court;(c) attorney's fees as provided by law; (d) pre- and post-judgment interest as allowed by law; and (e) punitive damages as may be determined by the finder of fact" as well as "(f) injunctive relief, in the form of an injunction ordering Defendant Diamond Offshore to issue corrected W-2 forms to Johann Rabe in compliance with federal law." Id. at 11-12; see also id. at 12 ( ).
On May 3, 2018, the Court denied the Motion to Expedite Defendant Diamond Offshore Services Limited's Motion for Rule 11 Sanctions [Dkt. No. 12], explaining:
Defendant apparently served its Motion for Rule 11 Sanctions on April 12, 2018, as required by Federal Rule of Civil Procedure 11(c)(2)'s safe-harbor provision. The Motion for Rule 11 Sanctions asserts that Plaintiff, its counsel, and its principal have presented Plaintiffs Original Complaint [1] "for an improper purpose, namely (1) harassment and the causing of unnecessary expense for defendant, (2) claims or other legal contentions not warranted by existing law or for establishing new law, and (3) factual contentions that do not have and/or are unlikely to have evidentiary support." Under Rule 11(c)(2), the motion "must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service" - here, May 3, 2018 - "or within another time the court sets." Defendant invokes limited authority for waiving Rule 11(c)(2)'s safe-harbor provision by conduct, citing Browne v. Nat'l Ass'n of Sec. Dealers, Inc., No. 3:05-cv-2469-G, 2006 WL 3770505 (N.D. Tex. Dec. 14, 2006), and Giganti v. Gen-X Strategies, Inc., 222 F.R.D. 299, 307 (E.D. Va. 2004) ( ). In Browne, the Rule 11 sanctions request failed because a motion was never served as Rule 11(c)(2) requires, and Judge Fish explained that, while the court does not question Giganti's conclusion that a party may waive the safe harbor provision, the court found the waiver argument unpersuasive. In this case, John Anthony Castro - in the course of the same email communications on which Defendant bases its waiver request - expressly disclaimed any waiver of the 21-day safe harbor, see Dkt. No. 12-3, and Plaintiff has now filed a First Amended Complaint [14] on April 27, 2018. Under all of these circumstances - without passing on whether the amended complaint may or may not withdraw or appropriately correct the matters that Defendant is asserting are sanctionable under Rule 11 - the Court determines that a finding of waiver by conduct is not warranted here.
Diamond then filed a Motion to Dismiss for Lack of Subject-Matter Jurisdiction and Failure to State a Claim under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), see Dkt. No. 17, which is pending and as to which Judge Lynn has explained that "Plaintiffs' deadline to respond to this Motion elapsed over one month ago and Plaintiffs have waived their right to respond" and that "[t]he Court will decide the Motion without further briefing," Dkt. No. 26 at 1.
And, on May 24, 2018, Diamond filed its first Motion for Rule 11 Sanctions against Plaintiffs Johann Rabe and Castro & Co., LLC, Plaintiffs' counsel Joshua S. Milam, and Castro & Co.'s principal John A. Castro under Federal Rule of Civil Procedure 11(b)(1)-(4) and 11(c)(1). See Dkt. No. 21 (the "First Rule 11 Motion"). In support of the First Rule 11 Motion, Diamond contended that "[a]ll conditions precedent to the filing of this motion have been satisfied," id. at 2, and, more specifically, that "[c]ounsel for defendant has discussed this motion with counsel for plaintiffs, including providing ECF 12 (Diamond's Motion to Expedite) and ECF 12-1 ( ) to counsel for plaintiffs more than 21 days prior to filing this motion, in conformance with Fed. R. Civ. P. 11(c)(2)," id. at 3. And Diamond contended that Plaintiffs Castro & Co. LLC and Johann Rabe, John Anthony Castro, and Plaintiffs' counsel Joshua Scott Milam Dkt. No. 22 at 7.
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