NPF Franchising, LLC v. SY Dawgs, LLC

• Decision Date: 24 September 2020
• Docket Number: CASE NO. 1:18CV277
• Parties: NPF FRANCHISING, LLC, Plaintiff, v. SY DAWGS, LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

NPF FRANCHISING, LLC, Plaintiff,
v.
SY DAWGS, LLC, et al., Defendants.

CASE NO. 1:18CV277

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

September 24, 2020

JUDGE DONALD C. NUGENT

MAGISTRATE JUDGE WILLIAM H. BAUGHMAN, JR.

REPORT AND RECOMMENDATION RE MOTION FOR FEES AND COSTS

I.

Like umping a fastpitch softball game in the midst of a pandemic in front of empty stands, deciding the SY Dawgs' pending motion for fees and costs¹ is best done without crowd noise. There has already been plenty of that in this case.

The SY Dawgs rest their motion on three grounds. From the general to the more specific, those grounds are the inherent powers of this Court, language from one of their agreements with plaintiff NPF Franchising, LLC, and Fed. R. Civ. P. 37. Both federal and Ohio law as well as the facts can be used to support all three arguments. The one that fits best, though, is the one the District Court and, to some degree, the Court of Appeals have already flagged: sanctions for repeated discovery intransigence by NPF and its lawyers.

Page 2

The task of deciding the pending motion is in some ways partially done. The District Court granted an earlier defense motion for sanctions for discovery violations,² and NPF's misconduct became only more brazen. For the reasons I explain more fully below, I recommend that the SY Dawgs' pending motion be granted. I further recommend that NPF and its lawyers of record be ordered to pay $224,863.80 to the SY Dawgs with post-judgment interest and with joint and several liability attaching to this sanction. This number is an appropriate reflection of the reasonable fees and expenses the SY Dawgs incurred in dealing with NPF's repeated discovery intransigence, multiple and ongoing discovery abuses, and NPF's steadfast refusal to comply with court orders associated with its discovery obligations.

This report and recommendation must provide more than my recommended decision for the pending motion. I was not present for all of the in-court proceedings when NPF's misconduct occurred or was at issue. I also did not participate in all of the earlier decision-making regarding NPF's misconduct. I had the benefit of having this matter referred to me three different times, which allowed me to interact directly with each side for certain specific rulings.³ The parties' filings, hearing transcripts, and meeting minutes help fill in other gaps, but these written documents don't allow me to assess in-person intangibles like demeanor, tone of voice, attitudes, and the like—factors that could affect a determination on sanctions. Calculating sanctions requires judicial assessment of a

Page 3

party's or a lawyer's conduct in the context of the entire case. This is particularly true for sanctions coming at the end of a case.

To address this inherent limitation, I set forth the detailed basis for the sanctions amount I recommend in an Excel workbook appended as an addendum to this order. This addendum is particularly helpful to the District Judge because it enables consideration of alternative factors when calculating sanctions. Our electronic court filing system does not allow me to file the Excel workbook itself, but the record shall include both the PDF version of the workbook as the addendum as well as the interactive Excel workbook itself.

II.

I do not need to recount in detail here the entire two-and-a-half-year history of this case to rule on the last pending motion. If I did that, I would run the risk of bringing back some of the crowd noise. Moreover, the pending motion follows the District Court's decision to grant an earlier motion for sanctions. NPF has presented no reason, nor has shown through its conduct, why I should treat the pending motion any differently.

I instead start with the long-standing principle the SY Dawgs seek to avoid in one of the three ways I mentioned above. That principle, a common feature of both federal law and Ohio law, is the American Rule regarding the recovery of attorney's fees. "[A] prevailing party may not ordinarily recover attorneys fees in the absence of a statute or

Page 4

enforceable contract providing for a fee award."⁴ I examine each of those three ways below.

Attorney's Fees and Costs Through the Court's Inherent Powers. The first way the SY Dawgs seek to sidestep the American Rule is through the Court's inherent powers. The Supreme Court has long acknowledged the inherent power of federal courts to sanction litigants for abusive conduct and bad faith litigation.

Although the traditional American rule ordinarily disfavors the allowance of attorneys' fees in the absence of statutory or contractual authorization, federal courts, in the exercise of their equitable powers, may award attorneys' fees when the interests of justice so require. Indeed, the power to award such fees 'is part of the original authority of the chancellor to do equity in a particular situation' . . . and federal courts do not hesitate to exercise this inherent equitable power whenever 'overriding considerations indicate the need for such a recovery' . . . .

Thus, it is unquestioned that a federal court may award counsel fees to a successful party when his opponent has acted 'in bad faith, vexatiously, wantonly, or for oppressive reasons' . . . . In this class of cases, the underlying rationale of 'fee shifting' is, of course, punitive, and the essential element in triggering the award of fees is therefore the existence of 'bad faith' on the part of the unsuccessful litigant.⁵

Page 5

Ohio law has the same exception to the American Rule "when the prevailing party demonstrates bad faith on the part of the unsuccessful litigant."⁶

Whether under federal law or Ohio law, this is not a power to be taken lightly. After all, it runs counter to the American Rule that has since 1796⁷ called for litigants to pay their own litigation costs and expenses. Without limitations, this inherent power would swallow up the rule. Accordingly, the courts have set a high bar for triggering this power. The required showing includes such instances where a party has maintained a defense " 'in bad faith, vexatiously, wantonly, or for oppressive reasons,' "⁸ where there has been "abuse of the judicial process,"⁹ or "where a meritless claim or defense is maintained in bad faith."¹⁰ Our Circuit has consistently upheld this high bar. "In order to award attorneys' fees under this bad faith exception, a district court must find that 'the claims advanced were meritless, that counsel knew or should have known this, and that the motive for filing the suit was for an improper purpose such as harassment.' "¹¹

This case and so many like it illustrate the difficulty we have in defining bad faith. What one side believes is bad faith litigation is to the other side merely aggressive litigation tactics—that sometimes help to achieve the client's objective. And who doesn't want an

Page 6

aggressive lawyer on their side? But the bad faith exception requires me to make "actual findings of fact that demonstrate that the claims were meritless, that counsel knew or should have known that the claims were meritless, and that the claims were pursued for an improper purpose."¹²

NPF tried to strike first by asking for injunctive relief. I denied that request over two years ago,¹³ NPF did not object, and the District Court adopted my report and recommendation.¹⁴ Rational thinking might have led a client to conclude it was then time to end this litigation. To that rational-thinking client, the subsequent litigation strategy did not benefit NPF. NPF went on to amend its complaint twice,¹⁵ but was never successful in getting injunctive relief. It even went to the trouble of asking the Court of Appeals to intervene on a writ of mandamus,¹⁶ only to have everything end with NPF voluntarily dismissing its case with prejudice.¹⁷ None of that appears to have pushed the ball forward for NPF.

But was that litigating in bad faith? If it was, then NPF owes the SY Dawgs the entire bill associated with their defense of this case, or $445,666.91 with post-judgment interest to accrue at an annual rate of 0.1280% compounded annually.¹⁸ This number

Page 7

constitutes the total fees and costs the SY Dawgs spent on this litigation, as set forth in the exhibit they submitted for purposes of the oral argument on their pending motion¹⁹ and as reflected in the addendum to this order.

But if that's the case, don't we run the risk of undermining the American Rule? After all, who wouldn't say from the SY Dawgs' perspective that these aggressive tactics were a pointless waste of resources, punctuated by NPF's decision to walk away from it all after two and a half years of contentious litigation? Even its decision to dismiss the case voluntarily with prejudice came with a robust flourish. Just within the three-and-a-half-month period culminating in the voluntary dismissal of this case, NPF filed an interlocutory appeal,²⁰ voluntarily dismissed it,²¹ filed a petition for a writ of mandamus and a motion to stay²² both of which it lost,²³ a motion for a default judgment against the SY Dawgs,²⁴ a motion for leave to file a motion for summary judgment,²⁵ and then its motion to dismiss its lawsuit with prejudice.²⁶ Our rational-thinking client might conclude that NPF couldn't make up its mind—and wasted plenty of time and money for both sides along the way.

Perhaps. Or like a scrappy softball team that's up to bat at the bottom of the ninth facing a significant deficit of, say, 7 to 0, NPF decided not to give up for fear of setting a

Page 8

bad precedent when facing future rivals. It instead chose to throw everything it had into that last half inning of play. No one would accuse that team of bad faith. Some might even praise it for having given its all even when the chips were down. That's why the bar is set so high for bad faith.

Moreover, this case didn't appear to start out with NPF asserting meritless claims. Its original complaint pled five causes of action...