United States District Court,
S.D. California.
Lynn J. HUBBARD and Barbara J. Hubbard, Plaintiffs,
v.
YARDAGE TOWN, INC. dba Yardage Town; Stancil G. Jones, Defendants.
YARDAGE TOWN, INC., Cross-Claimant,
v.
Stancil JONES, Cross-Defendant.
No. 05 CV 0104 IEG BLM.
Dec. 2, 2005.
Lynn J. Hubbard, III, Chico, CA, pro se,
for Plaintiffs.
David Warren Peters, Lawyers Against
Lawsuit Abuse, San Diego, CA, for Defendants and Cross-Claimant.
Kirk D. Hanson, Grace Hollis Lowe Hanson
and Schaeffer, San Diego, CA, for Cross-Defendant.
REPORT AND RECOMMENDATION FOR ORDER GRANTING MOTION TO ENFORCE
SETTLEMENT
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' AND
DEFENDANT STANCIL
JONES' MOTIONS FOR SANCTIONS [Doc. Nos. 23, 26]
MAJOR, Magistrate J.
*1 On June 21, 2005, the Court
conducted a Settlement Conference during which the parties settled their
dispute. The terms of the settlement were stated on the record and all of the
parties verbally agreed to the stated terms. Plaintiffs Lynn and Barbara
Hubbard ("Plaintiffs") subsequently notified the court that Defendant
Yardage Town Inc. ("Defendant Yardage Town") was not complying with
the terms of the settlement and requested a hearing. The Court set a Settlement
Disposition Conference for August 5, 2005.
On August 5, 2005 at the Settlement
Disposition Conference, Plaintiffs and Defendant Stancil Jones ("Defendant
Jones") advised the Court that defendant Yardage Town had violated the
terms of the settlement by refusing to pay Plaintiffs the full settlement
amount. Transcript of Settlement Disposition Conference at 10-11, 14
(hereinafter "SDC Transcript"). Pursuant to a special briefing
schedule, on August 19, 2005, Plaintiffs and Defendant Jones filed motions to
enforce the settlement and for monetary sanctions against David Peters, counsel
for Defendant Yardage Town. As an additional sanction, Plaintiffs moved to have
Mr. Peters declared a vexatious litigant. Doc. Nos. 23-30. Defendant Yardage Town and Mr. Peters
filed an untimely opposition, which the Court accepted on September 7, 2005.
Doc. Nos. 31-35. On September 15, 2005, Plaintiffs and Defendant Jones filed a
reply [Doc. Nos. 37-38] and the Court took the matter under submission pursuant
to Civil Local Rule 7.1(d)(1). Doc. No. 36.
On October 31, 2005, Defendant Yardage
Town filed a Request for Judicial Notice. Doc. No. 41. On November 15, 2005,
Plaintiffs filed a Response to Defendant's Supplemental Evidence. Doc. No. 42.
For the reasons set forth herein, this
Court RECOMMENDS that Plaintiffs' and Defendant Jones' motion to enforce the
settlement be GRANTED. Furthermore, for the reasons set forth below, this Court
GRANTS IN PART AND DENIES IN PART Plaintiffs' and Defendant Jones' motion for
sanctions.
I
FACTUAL BACKGROUND
Plaintiffs allege in their complaint
that they are disabled within the meaning of the American with Disabilities Act
("ADA"). They claim that prior to January 17, 2005 they experienced
difficulty in accessing a Yardage Town store due to numerous ADA violations on
the premise, partially owned by Defendant Jones. Complaint at 3. Plaintiffs
sought injunctive relief under California Civil Code Section 52, 55 and the
ADA. Plaintiffs also sought statutory monetary damages under California Civil
Code Section 52(a) or 54.3 and attorneys' fees.
Complaint at 9-10.
II
SETTLEMENT HISTORY
On April 11, 2005, Plaintiffs notified
the Court that the parties had settled the case on their own. As a result, the
Court vacated the Early Neutral Evaluation Conference and set a Settlement
Disposition Conference. Doc. No. 11. On May 17, 2005, Plaintiffs advised the
Court that the parties were unable to finalize the terms of the settlement or
fully execute the written settlement agreement. In response, the Court vacated
the Settlement Disposition Conference and scheduled a Settlement Conference.
Doc. No. 13.
*2 On June 21, 2005, the Court
conducted a Settlement Conference. The parties reached a settlement during this
proceeding and the terms of the settlement were recorded. Transcript of the
Settlement Conference ("SC Transcript). As part of the settlement,
Defendant Yardage Town agreed to pay $3,000 and Defendant Jones agreed to pay
an additional $2,000 to Plaintiffs. Id. at 4-5. At the conclusion of the
hearing, the parties confirmed on the record that they understood and agreed to
the settlement terms. Id. at 9-10. The parties, including the Yardage
Town representative, subsequently signed a written settlement agreement. [FN1] Declaration of Lynn Hubbard in Support of
Plaintiffs' Motion to Enforce Settlement, and for Sanctions ("Hubbard
Decl."), Exh. E.
FN1. None of the parties dispute that the
written settlement agreement was signed by all parties and all counsel except
Mr. Peters. However, the only copy submitted to the court contains only the
signatures of Plaintiffs, Mr. and Mrs. Hubbard, Plaintiffs' counsel, Lynn
Hubbard, and someone (apparently Dean Goldman) on behalf of Defendant Yardage
Town. Hubbard Decl., Exh. E. On the submitted document, the signature line for
David Peters, attorney for Defendant Yardage Town, was crossed out. Id.
On July 1, 2005, Mr. Peters apparently
sent Plaintiffs a check for $1,320, rather than the agreed-upon $3,000, and
advised that he would not provide the rest of the settlement money unless and
until Plaintiffs executed a W-9 form. Hubbard Decl. at 3. The parties exchanged
letters in an effort to resolve this impasse but were unsuccessful. On July 13,
2005, Plaintiffs advised the Court that they were unable to finalize the
settlement documents. As a result the Court scheduled a Settlement Disposition
Conference for August 5, 2005.
On August 5, 2005, Defendant Yardage
Town and Mr. Peters argued that they could not legally comply with the settlement
because the terms, which they had agreed to during the settlement conference,
violated the law. The Court advised counsel that Defendant Yardage Town and Mr.
Peters were violating the terms of the settlement and that Mr. Peters appeared
to be doing so in violation of his client's
desires and without supporting legal authority. The Court permitted Plaintiffs
and Defendant Jones to file motions relating to Mr. Peters' and Defendant
Yardage Town's conduct.
A. The Settlement Conference
On June 21, 2005, the Court conducted a
settlement conference. Lynn Hubbard, III appeared with his clients, Plaintiffs
Lynn J. and Barbara J. Hubbard. Robert Walters and Dan Buoye appeared for
Defendant Jones. Mr. Buoye was the property and business manager for Defendant
Jones and stated that he had full settlement authority. David Peters and Dean
Goldman appeared for Defendant Yardage Town. Mr. Goldman stated that he was
Defendant Yardage Town's secretary and that he had full settlement authority.
SC Transcript at 1-3. The parties settled this case during this conference. The
terms of the settlement were placed on the record.
Initially, the Court advised the parties
that they should listen carefully to the statement of the settlement terms
because if all of the parties agreed on the record to the settlement terms,
then the settlement as stated would be binding. Id. at 2. The clients
confirmed that they understood that the settlement would be binding. Id.
at 2-3. Mr. Hubbard then stated the terms of the settlement:
*3
HUBBARD: Yes. Your Honor, as to Defendant, Stancil Jones and Yardage Town, they
are going to evaluate their facility and make the necessary changes, that are readily achievable, to bring up to the
ADAG (phonetic) and California Title 24 standards within 24 months. In
addition, they are going to pay a total sum of $14,000, which will compensate
the Plaintiffs for any and all damages.
The Court: All right.
HUBBARD: I probably should put on the record that the
Plaintiffs have already reviewed the document that was signed today by Yardage
Town and approved as the form, as has my office and has Mr. Jones and attorney
Robert Walters.
The Court: All right. And when you talk of "that
document" that's the settlement agreement?
HUBBARD: That is the settlement agreement.
Id. at 3-4.
Mr. Walters stated that he agreed with
the settlement terms as stated by Mr. Hubbard with a few additions. Id.
at 4. He then clarified several terms including that Defendant Jones and
another defendant, K & K Lumber Corporation, already had paid $9,000 to
Plaintiffs so to reach the $14,000 figure stated by Mr. Hubbard, Defendant
Jones and Defendant Yardage Town only had to pay an additional $5,000. Id.
at 4-5. Mr. Walters stated that as part of this additional settlement,
Defendant Jones was going to pay an additional $2,000 and Defendant Yardage
Town was going to pay $3,000. Id. at 5. Mr. Hubbard confirmed that
clarification and that the settlement figure included all attorney's fees to
date. Id. at 5-6.
The Court then asked Mr. Peters if he agreed with the stated
settlement terms. Id. at 6. Mr. Peters replied as follows:
PETERS: I agree with that. I object to the form and content
of the document.
The Court: What do you mean by that, sir?
PETERS: In my opinion, it doesn't appear to comply with the
clerk [sic] of the law, therefore I cannot endorse it, as attorney for Yardage
Town, but I am here representing Yardage Town in other capacities.
The Court: Have you made your concerns known to your
client?
PETERS: Yes, I have, your Honor.
The Court: And, is your client--still want to go forward
with the settlement?
PETERS: Under protest and with no other option, my client
is willing to proceed.
The Court: Okay, well, it's not--he does have other
options, Counsel.
PETERS: I understand.
The Court: I think you're aware of that. So, is it your
understanding that your client wishes to go forward, having been advised of
your concerns, with regard to the settlement agreement?
PETERS: That is my understanding, your Honor.
The Court: Do you have--you have stated your objection to
the settlement agreement. Do you disagree with the terms, as stated by the--the
two attorneys before you?
PETERS: I do not disagree with their characterization.
Although I would think the written document would govern if there was any
disparity between their description of it and the actual document itself.
*4
The Court: Okay.
PETERS: And, I would also confirm that it's a document
of--how many pages, Bob? A total of?
WALTERS: Eight pages.
PETERS: Eight pages.
The Court: Okay. So there is an eight page document. I
would again note for the record that the other two parties will [sic] willing
to proceed forward just on the written document and it was you, Counsel, that
was unwilling to go forward just on the written document, and required this to
be put on the record. So, do all--do the other two attorneys agree that this
document--the title of it, Counsel?
WALTERS: "Settlement Agreement and Release in
Full."
The Court: But that is the document that is binding in this
case if there's a dispute among the parties. Do you agree to that, Mr. Hubbard?
HUBBARD: I do.
The Court: Mr. Peters?
PETERS: I do.
WALTERS: I do.
Id. at 6-8.
The Court then asked the parties if they
understood the terms of the settlement and if each agreed to be bound by them.
All of the parties replied affirmatively. Id. at 9-10. The Court
specifically asked Defendant Yardage Town's representative, Mr. Goldman, if he
understood that his "attorney disagrees with the language of the
settlement and has recommended to you that you not enter into this
agreement." Id. at 10. Mr. Goldman confirmed that he understood his
attorney's objection and stated that he still wanted to settle the case on the
stated terms. Id. The settlement agreement was then finalized. Hubbard
Decl., Exh. E; Memorandum of Points and Authorities in Support of Plaintiffs'
Motion to Enforce Settlement, and for Sanctions ("Plaintiffs'
Memo."), p. 6; Memorandum of Points and Authorities in Support of
Defendant/Cross-Defendant Stancil Defendant Jones' Motion for Sanctions
("Jones' Memo."), p. 2.
B. Written Settlement Agreement
The written settlement agreement clearly
states that "[t]he Settlement Payment shall be made payable to the Law
Offices of Lynn Hubbard Trust Account (Federal Taxpayer Identification Number
XXXXX [FN2]) and tendered to the Law Offices of Lynn Hubbard within
ten (10) days from the date Plaintiff executes this Agreement." Hubbard
Decl., Exh. E, 2.1. The parties further stipulate that "Plaintiff takes complete responsibility
for any tax liability from the receipt of any settlement monies under this
Agreement. An IRS 1099-MISC will be issued to the Law Offices of Lynn Hubbard
for the payments contained in paragraph 2.1." Id. at 2.2.
FN2.
The actual taxpayer identification number is provided in the settlement
agreement but, for privacy reasons, the Court declines to include it in this
order.
C. Settlement Disposition Conference
Prior to the Settlement Disposition Conference,
Plaintiffs advised the Court that Defendant Yardage Town was unwilling to pay
the entire $3,000 to Plaintiffs. During the conference, the Court asked Mr.
Peters to explain the situation. Mr. Peters acknowledged that the settlement
agreement required Defendant Yardage Town to pay $3,000 to Plaintiffs and that
his client had given him the entire $3,000. SDC Transcript at 2, 4, 18-20.
However, Mr. Peters argued that he had consulted numerous authorities [FN3] and that settlement payments must be made to both the
attorney and the Plaintiffs and that, since Plaintiffs were unwilling to
provide their individual social security numbers, he could not pay the full
amount. Id. at 2-6. When questioned, Mr. Peters stated that he had not
discussed with his client, Mr. Goldman, his decision not to pay Plaintiffs the full settlement amount. Id.
at 5. Mr. Peters stated that he had "discussed it briefly" with
another client representative, Mr. Recht, but that it was Mr. Peter's opinion
that the law required him to withhold the money so he did not need his client's
approval. Id. at 5-7, 16- 17. Mr. Goldman then confirmed that it was his
intention to settle the case in accordance with the settlement agreement, which
required the money to be paid to Plaintiffs and acknowledged that any tax
liabilities were the sole responsibility of Plaintiffs. Id. at 5-8. Mr.
Goldman also confirmed that Mr. Peters' reservations or concerns about the tax
consequences had been raised at the settlement conference and that Mr. Goldman
entered into the settlement agreement anyhow, intending to settle the case in
accordance with the written and verbal settlement agreement. Id. Mr.
Peters reiterated that it was his belief that the IRS law required him to
withhold money from the payment and that otherwise his client could face
"penalties, including felonies and misdemeanors." Id. at 9.
However, Mr. Peters admitted that he currently did not have an IRS opinion or
other legal authority supporting his position, nor did he have such opinion at
the time he made the decision to withhold the money. Id. at 7-11.
FN3.
Counsel represented that he had spoken with two IRS attorneys, an IRS agent,
and a tax attorney, and consulted a tax web site. SDC Transcript at 3. However, Mr. Peters never
provides the court with a declaration or affidavit from any tax authority
supporting or justifying his position or arguments.
*5 Mr. Walters then expressed his
outrage at the way Mr. Peters had handled this case and explained the
additional costs that his client had incurred as a result of Mr. Peters'
conduct. Id. at 11-15.
III
DISCUSSION
Plaintiffs and Defendant Jones move to
enforce the settlement agreement, arguing that all of the parties, including
Defendant Yardage Town, entered into a valid settlement agreement and that Mr.
Peters, apparently without Defendant Yardage Town's knowledge or consent,
refused to honor the terms of that settlement. Plaintiffs' Memo. at 4-12;
Jones' Memo. at 1-6.
Mr. Peters and Defendant Yardage Town
argue that they did not breach the terms of the settlement agreement because
the law required them to withhold 28% of the settlement when the individual
Hubbards failed to provide Defendant Yardage Town with their social security
numbers in accordance with the W-9 forms provided to Plaintiffs by Mr. Peters.
Opposition of Defendant Yardage Town to Motions for Sanctions and to Enforce
Settlement Agreement ("Opposition"). While counsel implicitly
acknowledges that the settlement agreement required Yardage Town to pay the full $3,000 to the Hubbard Law
Firm and to issue a 1099-MISC, counsel argues that his interpretation of the
law prohibits him from complying with those provisions. [FN4] Id.
FN4.
Mr. Peters claims that because the payment did not fall into one of the
exceptions, e.g. personal injury, under IRC § 61 and § 62,
"income from all sources is taxable and must be reported." Opposition
at 6. Mr. Peters claims that the mere fact that Plaintiffs are asking for
compensation for personal injuries is not wholly determinative of the characterization
of payment. Id. Thus, Mr. Peters believes it is his duty to withhold 28
percent of the payment and report it to the IRS. Id. at 5-7.
Plaintiffs and Defendant Jones also move
for sanctions based on Mr. Peters' conduct relating to the settlement in this
case. The moving parties argue that they incurred significant additional
expenses as a result of Mr. Peters' refusal to comply with the settlement
terms. The parties point out that Mr. Peters has failed to provide any law
supporting his position and has failed to provide any evidence proving that his
client supported his conduct. Plaintiffs' Memo at 6-12; Jones' Memo at 2-4;
Plaintiffs' Reply in Support of Plaintiffs' Motion to Enforce Settlement, and
for Sanctions ("Plaintiffs' Reply") at 4-5; Reply to Opposition of
Defendant/Cross-Complainant Yardage Town, Inc., to Defendant/Cross-Defendant
Stancil Jones' Motion for Sanctions ("Jones Reply") at 2-4. While Mr.
Peters does not directly oppose either party's motion, he implicitly argues that
he has not done anything wrong so sanctions would be inappropriate. Opposition
at 2-30.
Finally, as an additional sanction,
Plaintiffs move to have Mr. Peters declared a vexatious litigant. Again, Mr.
Peters does not directly oppose this motion but merely argues that everything
he did was proper and that Mr. Hubbard was the attorney acting inappropriately.
Id.
A. Motion to Enforce Settlement
Plaintiffs and Defendant Jones seek an
order enforcing the settlement. Settlement enforcement is appropriate under the
court's inherent powers. In re City Equities Anaheim, Ltd., 22 F.3d 954,
957 (9th Cir.1994); Doi v. Halekulani Corporation, 276 F.3d 1131,
1136-38 (9th Cir.2002). In order for a settlement agreement to be enforced it
must meet two elements. Marks-Foreman v. Reporter Pub. Co., 12 F.Supp.
1089, 1092 (S.D.Cal.1998). First, the settlement agreement must be complete. Id.
citing Maynard v. City of San Jose, 37 F.3d 1396, 1401 (9th
Cir.1994); Doi, 276 F.3d at 1137. Second, the settlement agreement must
be the result of the parties or their authorized representatives agreeing upon
the terms of the settlement. Marks-Foreman, 12 F.Supp. at 1092 citing
Harrop v. Western Airlines, Inc., 550 F.2d 1143, 1144-45 (9th Cir.1977); Doi, 276 F.3d at
1137-38. When an objection to a settlement term is raised after a settlement is
agreed upon by the parties, the court may rightfully deny such objections. Harrop,
550 F.2d at 1144.
*6 Here, the challenged
settlement satisfies both elements. First, the settlement agreement was complete.
The parties stated the terms of the settlement on the record after the
court-conducted settlement conference. SC Transcript at 3-8. Moreover, there is
a written settlement agreement allegedly signed by all parties and counsel,
except Mr. Peters, and the copy provided to the Court clearly establishes that
Defendant Yardage Town and Plaintiffs signed the agreement. [FN5] Hubbard Decl., Exh. E. In addition, Mr.
Peters specifically stated that the written settlement agreement would control
any disputes between the parties as to the settlement terms. SC Transcript at
7. Both the written settlement agreement and the verbal recitation of the
settlement set forth all of the material terms of the settlement. Accordingly,
the first element, a complete settlement agreement, is satisfied.
The second element requires that the
settlement be the result of an agreement by the parties or their authorized
representatives. In this case, the parties did
reach an agreement on the terms of the settlement. First and foremost, the
terms of the agreement are set forth in the written settlement agreement,
signed by Defendant Yardage Town's authorized representative, Mr. Goldman.
Hubbard Decl., Exh. E. Second, the essential terms were placed on the record at
the conclusion of the settlement conference and Defendant Yardage Town's
authorized representative agreed. SC Transcript at 8. Third, Defendant Yardage
Town's agreement was voluntary and knowing. Mr. Peters advised his client of
his concerns regarding the form and language of the settlement agreement before
the case was settled. SC Transcript at 6-7; SDC Transcript at 17-20. Mr.
Goldman, Defendant Yardage Town's representative, confirmed on the record that
counsel had advised him not to sign the settlement agreement but that he wanted
to settle the case and was going to execute the settlement agreement, agreeing
to the disputed terms, despite counsel's advice. SC Transcript at 10; SDC Transcript
at 6-7. Accordingly, the undisputed evidence establishes that Defendant Yardage
Town knowingly and voluntarily agreed to the settlement terms.
The facts of this case clearly establish
that the parties (Plaintiffs, Yardage Town and Jones) reached an enforceable
settlement agreement and that Mr. Peters independently breached the agreement.
In his opposition, Mr. Peters never addresses the fact that the parties had
agreed to settlement terms or the standard for enforcing a settlement
agreement. Rather, Mr. Peters merely reargues
his position that public policy and IRS tax law require him to withhold the
money and that the Hubbards engage in unfair, extortionate litigation.
Opposition at 3-30. This is insufficient. First, Mr. Peters has not provided
binding, or even persuasive, authority that he is "required" to
withhold the money. Second, Mr. Peters took the contested action without
discussing it with his client or obtaining his client's authorization, even
though he knew that his client previously had chosen to disregard his advice
and enter into the settlement.
*7 During the settlement
conference, Mr. Peters stated that he objected to the form and content of the
agreement but he did not provide any authority for his position. SC Transcript
at 6. During the Settlement Disposition Conference, Mr. Peters stated that he
had spoken with several IRS attorneys and opined that they would support his
position. SDC Transcript at 3. However, Mr. Peters did not provide a
declaration or other statement from an IRS attorney. Mr. Peters explained that
he expected to receive such a letter on August 26, 2005. Id. In his
opposition filed on September 2, 2005, Mr. Peters again failed to provide the
anticipated IRS letter, upon which he allegedly premised his decision not to
comply with the settlement terms. Finally, on October 31, 2005, Mr. Peters
filed a request for judicial notice attaching several documents including a
letter from the IRS. Request by Defendant Yardage Town for Judicial Notice
("Request"), Exh. A. Notably, this letter does not fulfill any of the
predictions made by Mr. Peters. The letter
merely sets forth general rules governing what constitutes gross income and the
taxpayer's responsibilities regarding reporting gross income. Id. The
letter specifically states "[w]hether a recovery under the ADA is
excludable from gross income under §
104(a)(2) of the code is beyond the scope of this letter." Id.
The letter also provides general information regarding reporting requirements. Id.
The letter does not, however, address the reporting or withholding obligations
of a defendant who is paying money to a plaintiff to settle a case. Id.
The letter, while interesting and informative, does not support Mr. Peters'
novel idea that he was required to breach the settlement agreement and withhold
28% of the settlement payment in the instant factual situation. Id.
In his pleadings and oral argument, Mr.
Peters argued that Commissioner of Internal Revenue v. Banks, 543 U.S.
426, 125 S.Ct. 826, 160 L.Ed.2d 859 (2005), mandated the withholding. Counsel
is wrong. In Banks, the Supreme Court held that a taxpayer must include
in his gross income, the portion of a taxable recovery that the taxpayer paid
to his attorney as part of a contingent fee arrangement. Id. at 831-34.
However, Banks does not address the obligations of the party who paid
the litigation settlement. Id. As set forth in the IRS letter submitted
by Mr. Peters,
[w]hether settlement proceeds are excludable from gross
income as damages received on account of personal injuries or physical sickness
is, in part, a factual question. In reaching
this determination, courts look at the settlement agreement in light of all the
surrounding circumstances. Neither the courts nor the Commissioner are bound by
the terms of a settlement agreement between third parties that is not the
result of good faith, adversarial, arms-length negotiations. A court may look
at the allegations of the complaint to determine whether the claims to which
the proceeds are allocated in the settlement agreement are claims for personal
physical injuries or physical sickness. The mere mention of "personal
physical injuries" in a complaint does not, by itself, serve to bring a
recovery within the exclusion.
*8 Request at Exh. A, p. 2. The
IRS continued that "[w]hether a recovery under the ADA is excludable from
gross income under § 104(a)(2) of
the code is beyond the scope of this letter[.]" Id. Neither Banks
nor the IRS informational letter submitted by Mr. Peters justifies Mr. Peters'
argument that he was required to withhold 28% of the settlement figure.
Accordingly, this Court finds that Mr. Peters did not have a legal obligation
to withhold part of the settlement payment.
Second, Mr. Peters withheld a portion of
the settlement proceeds in violation of his client's wishes. During the
settlement conference, Mr. Peters explained his concerns regarding the form of
the settlement to his client. At the conclusion of the conference, when the
terms were stated on the record, Mr. Peters again voiced his concerns as to the
"form and content" of the settlement agreement.
SC Transcript at 6. The Yardage Town representative, Dean Goldman, stated that
he understood his attorney's concerns and advice not to settle but wanted to
settle in accordance with the settlement agreement anyhow. Id. at 6-8.
Mr. Goldman signed the written settlement agreement. Hubbard Decl. at Exh. E.
After the settlement conference, Defendant Yardage Town forwarded the full
$3,000 to Mr. Peters with the expectation that the money would be paid to
Plaintiffs. SDC Transcript at 6-7.
During the Settlement Disposition
Conference, Mr. Peters acknowledged that his client had given him the entire
$3,000 payment and that he independently decided to withhold the money. Id.
at 20. Mr. Peters admitted that he had not discussed this tactic with Mr.
Goldman, the Yardage Town representative who attended both the Settlement
Conference and the Settlement Disposition Conference. Id. at 5. Mr.
Peters asserted that he had "discussed it briefly" with another client
representative, Mr. Recht. Id. However, in his Opposition and
supplemental briefing, Mr. Peters did not provide a declaration from Mr. Recht,
or any other Yardage Town representative, stating that he or she authorized Mr.
Peters to violate the terms of the settlement agreement and withhold a portion
of the $3,000 settlement payment.
For the reasons set forth above, the
Court finds that there was a valid and enforceable settlement reached by the
parties and that one provision required Defendant Yardage Town to pay $3,000 to
Plaintiffs using their lawyer's trust account
tax ID number. Hubbard Decl., Exh. E; see Doi, 276 F.3d at
1137-38 (finding a binding settlement agreement where terms of agreement were
placed on the record and the party replied "yeah" when asked if she
agreed with the terms). The Court further finds that Mr. Peters, counsel for
Defendant Yardage Town, chose to violate material terms of the settlement by
refusing to forward to Plaintiffs the full settlement payment made by his
client. The Court concludes that counsel took this action without his client's
authorization and in violation of the client's expectation that the full $3,000
would be paid to Plaintiffs. The Court also determines that Mr. Peters took
this action despite his knowledge that his client had rejected his concerns and
recommendation and had explicitly agreed to the settlement. Finally, the Court
finds that since Mr. Peters did not have at the time of the settlement, at the
time of the withholding, or at the time of any of the relevant court
proceedings an opinion or other legal document mandating his position, Mr.
Peters did not have a legal or factual basis for his conduct in violating the
settlement. [FN6]
FN6.
For the reasons set forth above, the Court also finds that the IRS opinion
letter submitted by Mr. Peters does not justify his conduct. However, for
purposes of this motion, the Court focuses on the fact that Mr. Peters chose to
violate the terms of the settlement without any factual or legal basis; he
merely had his belief (or hope) that the IRS would supply such support. This is insufficient.
*9 Accordingly, this Court
RECOMMENDS that Plaintiffs' and Defendant Jones' motion to enforce the
settlement be GRANTED.
B. Sanctions
A court has the power to issue sanctions
under Rule 11 of the Federal Rules of Civil Procedure, Title 28 U.S.C. § 1927, and its inherent authority.
Rule 11(b) says:
By presenting to the court (whether by signing, filing,
submitting, or later advocating) a pleading, written motion, or other paper, an
attorney or unrepresented party is certifying that to the best of the person's
knowledge, information, and belief, formed after an inquiry reasonably under
the circumstances, -
(1) it is not being presented for any improper purpose,
such as to harass or to cause unnecessary delay or needless increase in the
cost of litigation
(2) the claims, defenses, and other legal contentions
therein are warranted by existing law or by a nonfrivolous argument for the
extension, modification, or reversal of existing law or the establishment of
new law;
(3) the allegations and other factual contentions have
evidentiary support or, if specifically so identified, are likely to have
evidentiary support after a reasonable opportunity for further investigation or
discovery; and
(4) the denials of factual contentions are warranted on the
evidence or, if specifically so identified, are reasonably based on a lack of
information or belief.
Fed.R.Civ.P. 11(b).
Case law has established that sanctions
must be imposed if the pleading or other paper is (a) filed for an improper
purpose or (b) is "frivolous." Townsend v. Holman Consulting
Corp., 929 F.2d 1358, 1362 (9th Cir.1990). Rule 11 standards of improper
purpose and frivolousness should be viewed in light of an objective standard. Id.
The court can impose sanctions for frivolousness if the filing is both
"baseless" and made "without reasonable and competent
inquiry." Id.; In re: Keegan Mgmt. Co., Securities Litig.,
78 F.3d 431, 434 (9th Cir.1996). Finally, Rule 11 does not require a finding of
bad faith. Chambers v. NASCO, Inc., 501 U.S. 32, 47, 111 S.Ct. 2123, 115
L.Ed.2d 27 (1991). Rule 11(c) allows for "an order directing payment to
the movant of some or all of the reasonable attorneys' fees and other expenses
incurred as a direct result of the violation" as requested in a motion.
Fed.R.Civ.P. 11(c)(2); Barber v. Miller, 146 F.3d 707, 711 (9th
Cir.1998).
Section 1927 provides that "[a]ny
attorney ... who so multiples 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. Section 1927 sanctions must be supported by a
"finding of subjective bad faith." New Alaska Development Corp. v.
Guetschow, 869 F.2d 1298, 1306 (9th Cir.1989). The bad faith element is
satisfied when an "attorney knowingly or recklessly raises a frivolous
argument, or argues a meritorious claim for the purpose of harassing an opponent."
West Coast Theater Corp. v. City of Portland, 897 F.2d 1519, 1528 (9th
Cir.1990).
*10 Finally, the court also may
issue sanctions under its own inherent power. District courts have inherent
power to impose sanctions even where the bad faith conduct also may be
sanctioned under statutes or rules. Chambers, 501 U.S. at 45. These
powers are "governed not by rule or statute but by the control necessarily
vested in courts to manage their own affairs so as to achieve the orderly and
expeditious disposition of cases." Id. When the court imposes
sanctions under its inherent power, there must be some showing that the party
acted willfully or in bad faith. Id. at 43.
The court's inherent power also includes
imposing the less-severe sanction of assessment of attorneys' fees. Id.
at 45. The court may assess attorneys' fees in three cases (1) "the common
fund exception" where litigation directly benefits others (2)
"willful disobedience of a court order" and (3) when a party has
"acted in bad faith, vexatiously, wantonly, or for oppressive
reasons." Id. at 45-46 quoting Alyeska Pipeline Co. v.
Wilderness Society, 421 U.S. 240,
258-59, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). The third case, the bad-faith
exception, resembles Rule 11's certification requirement, which requires a
signer of a paper to ensure that the paper is not for an improper purpose, such
as to harass, cause unnecessary delay, or needlessly increase the cost of
litigation. Id. at 46.
Plaintiffs and Defendant Jones request
sanctions based on Mr. Peters' repeated and unjustified interference with the
parties' efforts to finalize the settlement. Plaintiffs request sanctions under
§ 1927 and the court's inherent
authority and Defendant Jones requests sanctions under Rule 11(b) and (c). Each
party requests sanctions in the amount of fees and costs the party incurred
while attempting to force Mr. Peters to comply with the terms of the
settlement. Jones Memo. at 5; Plaintiffs' Memo. at 13-14.
Here, the Court finds that the
imposition of sanctions against Mr. Peters and in favor of both Plaintiffs and
Defendant Jones is appropriate under all three legal authorities because Mr.
Peters acted intentionally, in bad faith, for an improper purpose, and with an
intent harass the Plaintiffs. Moreover, Mr. Peters' settlement withholding and
legal papers, pleadings and arguments are without legal foundation or merit and
he unreasonably and vexatiously multiplied the litigation, which resulted in
excess costs, expenses, and attorneys' fees to the other litigants. As
discussed at length above, Mr. Peters knew that his client had chosen to
disregard his advice and enter into the
settlement which required Defendant Yardage Town to pay $3000 to Plaintiffs,
regardless of any potential tax concerns. Despite this knowledge, Mr. Peters,
without his client's consent or even knowledge, decided not to comply with the
valid settlement. Mr. Peters attempts to argue that he was "required"
to take the disputed conduct. However, the "law" that he cites in
support of his position was not available to him at the time he made his
decision to violate the settlement terms or at the time of the settlement
disposition conference. Moreover, the IRS opinion letter ultimately submitted
did not live up to Mr. Peters' representations and did not support his
arguments of conduct. Mr. Peters chose to violate the valid settlement,
requiring the parties to engage in extended, expensive and unnecessary
litigation, without his client's knowledge and without legal justification.
This is the essence of frivolous and bad faith litigation and the imposition of
sanctions against Mr. Peters is warranted.
*11 Mr. Peters argues that he was
required to engage in the disputed conduct. However, his opposition brief is
very revealing. First, Mr. Peters never addresses the fact that his client
agreed to the settlement terms. Rather, Mr. Peters reargues the inequities in
the instant case and again asserts that the Plaintiffs and Plaintiffs' counsel
are frequent litigators who need to be stopped.
[FN7] While this issue may properly be raised in another forum or case, it is
not relevant to the instant situation, where Defendant Yardage Town voluntarily and knowingly entered
into the settlement. Second, Mr. Peters argues that he was required to withhold
the money but he never provided legal authority for his position. Mr. Peters
repeatedly stated that he had spoken with an IRS chief and tax lawyer who
advised him that his position was correct. However, he never provided an
affidavit from these individuals. Moreover, the IRS letter, which Mr. Peters'
repeatedly said would prove his point, merely is a general opinion, not
tailored in any way to the facts of this case. And, significantly, it does not
address the payer's withholding and reporting responsibilities and, therefore,
is irrelevant to the instant dispute.
FN7.
A review of Mr. Peters' oral arguments and his written submissions reveals that
he routinely failed to address the relevant legal issues. Rather, he
repeatedly, and at length, restates and reargues his position that the Hubbards
file numerous and frivolous lawsuits, that attorney Lynn Hubbard engages in
unethical litigation tactics and that all of the Hubbards are engaged in a
scheme to defraud the tax authorities. However, these issues, valid or not, are
not relevant to the instant case. In this case, the parties, including Mr.
Peters' client, reached a settlement. Mr. Peters responsibility was to support
and advance his client's settlement desire, not his personal beliefs regarding
ADA litigation.
As set forth above, Mr. Peters acted
with an improper purpose when he refused to forward all of the settlement money
and vigorously litigated his right to do so. The evidence also establishes that
Mr. Peters unreasonably and vexatiously multiplied the court proceedings. Mr.
Peters willfully and intentionally engaged in this inappropriate conduct in an
effort to harass the Plaintiffs because he disapproves of their ADA litigation
tactics. And, he engaged in this conduct without any legal basis for his
arguments, just the unfounded anticipation of a supporting IRS opinion. The
totality of the circumstances establishes bad faith, improper purpose and
frivolousness. Sanctions against Mr. Peters are appropriate. See Doi,
176 F.3d at 1140 (affirming the imposition of sanctions where litigant refused
to sign written settlement agreement after verbally settling case).
Plaintiffs request sanctions in the
amount of $10,866.78. Plaintiffs' Memo. at 14; Hubbard Decl. at 8-11, Exhs. R
and S. The requested sanction figure is based upon the additional expenses that
Plaintiffs incurred after the June 21st settlement conference as a result of
Mr. Peters' conduct. Id. The figure consists of $8,936.75 in attorney
and staff hours and $1930.03 in other expenses. Id. The Court finds that
the described work was reasonable and necessary, given Mr. Peters' conduct, and
directly attributable to Mr. Peters' conduct.
Defendant Jones request sanctions in the
amount of $4,280.00 for the additional work that Mr. Walters, counsel for
Defendant Jones, had to perform as a result of Mr. Peters' conduct. [FN8] Jones' Memo. at 5-6. Defendant Jones is
not requesting reimbursement for any expenses, just the billable hours for the
work that Mr. Walters was required to perform as a result of Mr. Peters' refusal
to comply with the settlement agreement. Id. The Court finds that the
described work was reasonable and necessary and directly attributable to Mr.
Peters' actions.
FN8.
Defendant Jones' memorandum describes the additional work that Mr. Walters was
required to perform as a result of Mr. Peters' refusal to comply with the
settlement agreement. Jones' Memo. at 5-6. The listed work totals $3,280.00. Id.
The Court assumes that the additional $1,000 requested is due to the work that
Mr. Walters had to perform in preparing Defendant Jones' motions and reply.
This amount is less than the amount requested by Plaintiffs for preparing their
pleadings. Accordingly, the Court finds that the requested amount of $4,280.00
is reasonable and directly attributable to Mr. Peters' conduct.
*12 Mr. Peters does not dispute
the amount of the sanctions requested by the
parties. Opposition; Declaration of Attorney David Peters in Opposition to
Motions for Sanctions by Plaintiffs and Defendant Jones.
For the reasons set forth above, the
Court finds it appropriate to sanction Mr. Peters' for his frivolous
litigation, for needlessly increasing the litigation costs, and for engaging in
litigation in bad faith and for an improper purpose. The Court sanctions Mr.
Peters by requiring Mr. Peters to reimburse Plaintiffs' counsel and Defendant
Jones' counsel for the additional costs they incurred in responding to Mr.
Peters' refusal to comply with the settlement terms. Mr. Peters is ordered to
pay $10,866.78 to Mr. Lynn Hubbard and $4,280.00 to Mr. Walters. Mr. Peters
must transmit these funds to Mr. Hubbard and Mr. Walters by December 16, 2005
and must file a written declaration with the Court by December 23, 2005
confirming that the payments have been made. Plaintiffs' and Defendant Jones'
motions for monetary sanctions are GRANTED.
C. Vexatious Litigant
As an additional sanction, Plaintiffs
seek an order declaring Mr. Peters to be a vexatious litigant. To declare
someone a vexatious litigant, the court must evaluate both the "number of
and content of the filings as indicia" as to the frivolousness of the
claims. De Long v. Hennessey, 912 F.2d 1144, 1148 (9th Cir.1990).
However, an attorney appearing for and representing a client "cannot be
sanctioned as a vexatious litigant; by definition, he or she is acting as an attorney and not a litigant." Weissman
v. Ouail Lodge, Inc., 179 F.3d 1194, 1197 (9th Cir.1999). Because Mr.
Peters has appeared throughout these proceedings as an attorney representing
Defendant Yardage Town, not as a litigant, he cannot be sanctioned as a
vexatious litigant. Id. Accordingly, Plaintiffs' motion for sanctions
that Mr. Peters be declared a vexatious litigant is DENIED.
CONCLUSION
As set forth above, Plaintiffs' and
Defendant Jones' motions for sanctions are GRANTED IN PART AND DENIED IN PART.
Their motions for monetary sanctions are GRANTED. Mr. Peters, counsel for
Defendant Yardage Town, is ordered to pay monetary sanctions to Plaintiffs'
counsel in the amount of $10,886.78 and to Defendant Jones' counsel in the
amount of $4280.00. Mr. Peters is required to make these payments so the money
is received by counsel by the close of business on December 16, 2005. By
December 23, 2005, Mr. Peters is required to file a declaration with the Court
confirming that the required payments were made, with a copy to be served on
all counsel.
Plaintiffs' Motion to Sanction Mr.
Peters as a vexatious litigant is DENIED.
This Court RECOMMENDS that Plaintiffs'
and Defendant Jones' Motions to Enforce the Settlement be GRANTED. If Defendant
Yardage Town does not file an objection to this Recommendation, it must forward
the remanding settlement money to Plaintiffs' counsel so it is received by the
close of business on December 16, 2005. Any
written objections to this Recommendation must be filed with the Court and
served on all parties no later than December 16, 2005. The document
should be captioned "Objections to Report and Recommendation." Any
reply to the objections shall be filed with the Court and served on all parties
no later than December 30, 2005. The parties are advised that failure to
file objections within the specified time may waive the right to raise those
objections on appeal of the Court's order. Turner v. Duncan, 158 F.3d
449, 455 (9th Cir.1998).
*13 IT IS SO ORDERED.
Slip Copy, 2005 WL 3388146 (S.D.Cal.)
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