Cruz v. Don Pancho Mkt., LLC

• Decision Date: 18 March 2016
• Docket Number: No. 1:15–cv–698,1:15–cv–698
• Citation: 171 F.Supp.3d 657
• Parties: Laurencio Bautista Cruz, Plaintiff, v. Don Pancho Market, LLC, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

171 F.Supp.3d 657

Laurencio Bautista Cruz, Plaintiff,

v.Don Pancho Market, LLC, et al., Defendants.

No. 1:15–cv–698

United States District Court, W.D. Michigan, Southern Division.

Signed March 18, 2016

Christopher James Acklin, Robert Anthony Alvarez, Avanti Law Group PLLC, Wyoming, MI, for Plaintiff.

Collin Harold Nyeholt, Joni Marie Fixel, Fixel & Nyeholt, PLLC, Okemos, MI, for Defendants.

ORDER FINDING DEFENDANTS' COUNSEL AND LAW FIRM IN VIOLATION OF FED. R. CIV. P. 11(b) AND IMPOSING SANCTIONS UNDER FED. R. CIV. P. 11(c)

Paul L. Maloney, United States District Judge

In July 2015, Plaintiff filed a one-count complaint alleging a violation under the Fair Labor Standards Act, seeking damages for alleged unpaid wages. (ECF No. 1.) What seemed like a run-standard FLSA complaint then blossomed into a much more complicated case.

In August 2015, Defendants filed an answer and four separate state-law counterclaims. (ECF Nos. 9–10.) The Court subsequently found that one of those claims, an “abuse of process” claim under Michigan state law, was frivolous. (See ECF No. 19 at PageID.182–89.) Thus, on its own initiative pursuant to Rule 11(c)(3), the Court ordered Defendants' counsel (and law firm) to show cause why pleading “an abuse of process” counterclaim did not violate Rule 11(b), and sanctions should not issue consistent with Rule11(c)(3)–(5). (See id. at PageID.189.)

Defendants filed a timely response (ECF No. 19), but the Court finds the response unpersuasive and sanctions appropriate. The Court will resolve this issue without a hearing.¹

I. Legal Framework

“On its own, the party may order an attorney, law firm, or party to show cause why conduct specifically described in the order has not violated Rule 11(b).” Fed. R. Civ. P. 11(c)(3). In its original order to show cause, the Court stated the following:

First, as the Court has alluded to, an “abuse of process” claim under state common law could not possibly be a cause of action for the mere filing of a complaint in federal court. A variety of bodies of law, including the Rules Enabling Act, various preemption doctrines, and the Erie Doctrine would bar that sort of claim here.² While it's possible that a proper “abuse of process” claim might lie in rare diversity cases concerning alleged abusive behavior in state proceedings, this case arises under federal question jurisdiction. Plaintiff originally filed a one-count complaint in federal court, alleging a violation of federal law, in which federal rules provide the ground rules for alleged abuses in federal proceedings.

An “abuse of process” claim, apparently rooted in Michigan common law from the early-twentieth century, cannot be employed to collaterally attack alleged “abuses” contained in the body of a federal complaint. Again, there are a plethora of potential bars to this claim in federal court, including but not limited to the fact that the Federal Rules of Civil Procedure expressly govern sanctions for “commit[ing] an act in the process [of initiating or maintaining a civil action] that is improper in the regular prosecution of the claim.” (ECF No. 9 at PageID.28); see, e.g., Fed. R. Civ. P. 11(b)–(c) ; see also, e.g.,First Marietta Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501 (6th Cir.2002) (“Ohio Revised Statute § 2323.51 is procedural in nature,” and thus, Rule 11, rather than Ohio law, governed “sanctions for frivolous conduct.”). The fact that Defendants baldly seek “attorney's fees” as their sole relief under this count underscores the impropriety of such a claim in federal court. See, e.g.,First Marietta Bank of Marietta, 307 F.3d at 530 (“Under Ohio law, the court can award costs and fees.... Because the Ohio statute does not have a safe harbor provision similar to Rule 11, the Ohio statute conflicts with the procedural requirements of the federal rule.”).

Here, the only facts that Defendants allege in their counterclaim for any “abuse of process” is alleged “false and untenable allegations” contained in Count I of the federal complaint, which merely seeks unpaid wages under the FLSA. Notwithstanding the obvious reasons why a state common law “abuse of process” claim for alleged “false and untenable allegations” contained in a federal complaint, concerning a federal cause of action, could not possibly lie, Defendants have failed to state a claim upon which could be granted under state law.

“In Michigan, to establish a claim for abuse of process, a plaintiff must prove: '(1) an ulterior purpose and (2) an act in the use of process which is improper in the regular prosecution of the proceeding.' Friedman v. Dozorc, 412 Mich. 1, 312 N.W.2d 585, 594 (1981) (citation omitted). For an abuse-of-process claim, the misconduct 'is not the wrongful procurement of legal process or the wrongful initiation of criminal or civil proceedings ; it is the misuse of process, no matter how properly obtained, for any purpose other than that which it was designed to accomplish.' Id. at n. 18 (quoting Restatement (Second) of Torts § 682 cmt. a (1977)). Garcia's abuse-of-process claim against Thorne fails because Thorne's behavior has to do with the initiation of criminal proceedings, not the misuse of process. Spear v. Pendill, 164 Mich. 620, 130 N.W. 343, 344 (1911) (stating that the abuse-of-process cause of action 'lies for the improper use of process after it has been issued, not for maliciously causing it to issue').” Garcia v. Thorne, 520 Fed.Appx. 304, 311 (6th Cir.2013) (emphasis added); see, e.g.,DirecTV v. Zink, 286 F.Supp.2d 873, 876 (E.D.Mich.2003) (“Defendant alleges only that plaintiff initiated the case in order to extort money from defendant. As Friedman makes clear, an abuse of process action is only appropriate 'for the improper use of process after it has been issued, not for maliciously causing it to issue.' ”).

Thus, even if the cause of action concerned alleged abuses in state proceedings, Michigan common law does not recognize such an action for the mere “initiat[ion of a] case in order to extort money.” E.g.,DirecTV, 286 F.Supp.2d at 876.

In sum, the Court is deeply concerned that Defendants' claim could not possibly have been “warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law.” Fed. R. Civ.P. 11(b)³ ; see, e.g.,Powell v. Squire, Sanders & Dempsey, 182 F.3d 918 (6th Cir.1999) (table) (upholding in part imposition of sanctions because “abuse of process claim” “utterly lacked any basis in law”).

Any “inquiry reasonable under the circumstances” would surely have led counsel to the conclusion that the Court (and Plaintiff) drew. When an attorney files a complaint, she certifies that “the claims ... and other legal contentions are warranted by existing law ... [and] the factual contentions have evidentiary support, or if specifically identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery.” Fed. R. Civ. P. 11(b) ; see, e.g.,Bus. Guides, Inc., v. Chromatic Commc'ns Enter., Inc., 498 U.S. 533, 554, 111 S.Ct. 922, 112 L.Ed.2d 1140 (1991) (“Rule 11 imposes an objective standard of reasonable inquiry .” (emphasis added)); Chambers v. NASCO, 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27, (1991) (“Rule 11... imposes an objective standard of reasonableness inquiry which does not mandate a finding of bad faith.”); see also, e.g.,First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501, 515 (6th Cir.2002) (“[T]he imposition of Rule 11 sanctions requires a showing of 'objectively unreasonable conduct.' ”); Oliveri v. Thompson, 803 F.2d 1265, 1275 (2d Cir.1986) (“[S]anctions shall be imposed when it appears that a competent attorney could not form the reasonable belief as to the validity of what is asserted in the paper.”).

Thus, the Court DISMISSES Defendants' fourth counterclaim WITH PREJUDICE pursuant to Fed. R. Civ. P. 12(b)(6). Further, pursuant to Fed. R. Civ. P. 11(c)(3), the Court ORDERS Defendants' counsel and law firm⁴ to SHOW CAUSE why pleading this counterclaim “has not violated Rule 11(b),” as it was “not warranted by existing law.”

(See ECF No. 19 at PageID.182–85.)

Thus, consistent with well-established requirements for due process, the Court “issue[d] a show-cause order requiring the alleged violator 'to show cause why conduct specifically described in the order has not violated Rule 11(b).' ” Indah v. U.S. S.E.C., 661 F.3d 914, 926 (6th Cir.2011) (citing Fed. R. Civ. P. 11(c)(3) ). The Court has given proper “notice and a reasonable opportunity to respond.” Id. ; Fed. R. Civ. P. 11(c)(1).

The Court must now consider arguments advanced by counsel, with the principle in mind that “Rule 11 imposes an objective standard of reasonable inquiry.” Bus. Guides, Inc., v. Chromatic Commc'ns Enter., Inc., 498 U.S. 533, 554, 111 S.Ct. 922, 112 L.Ed.2d 1140 (1991) ; see, e.g., Chambers v. NASCO, 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27, (1991) (“Rule 11... imposes an objective standard of reasonableness inquiry which does not mandate a finding of bad faith.”); First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501, 515 (6th Cir.2002) (“[T]he imposition of Rule 11 sanctions requires a showing of 'objectively unreasonable conduct.' ”). “An order imposing a sanction must describe the sanctioned conduct and explain the basis for the sanction.” Fed. R. Civ. P. 11(c)(6). Counsel argues that sanctions should not issue for a few reasons, which the Court will address in turn.

II. Analysis

A. “The Limited Time Counsel Had to Decide Whether or not to Preserve the Abuse of Process Claim Justified Relying on the Facts he had at the Time.”

Counsel first argues that he faced a limited time period for filing an answer or compulsory counterclaim.

It should not escape the court, in evaluating whether counsel committed sanctionable misconduct in bringing the abuse of process claim when he did on the facts that he did, that if the court had agreed

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