Williams v. Estates LLC

663 F.Supp.3d 466

Brian C. WILLIAMS, et al., Plaintiffs, v. THE ESTATES LLC, et al., Defendants.

1:19-CV-1076

United States District Court, M.D. North Carolina

Signed March 23, 2023

Dhamian A. Blue, Blue LLP, Raleigh, NC, Jonathan T. Dickerson, James C. White, J.C. White Law Group, PLLC, Chapel Hill, NC, for Plaintiffs Brian C. Williams, Maricol Yunaira Tineo De Leon, Jairo Vensrique Leon Da Costa.

Jonathan T. Dickerson, James C. White, J.C. White Law Group, PLLC, Chapel Hill, NC, for Plaintiff Mike Gustafson.

David J. Martin, David J. Martin PLLC, Apex, NC, John David Matheny, II, Mooresville, NC, Steven W. Shaw, Shawlaw Legal PLLC, Clinton, UT, for Defendants The Estates LLC, The Estates Real Estate Group, LLC, Timbra of North Carolina, LLC, Versa Properties, LLC, Red Tree Holdings, LLC, Maldives, LLC, Tonya Newell, Lynn Pinder, Craig Orson Brooksby, Avirta, LLC, King Family Enterprises, LLC.

John David Matheny, II, Mooresville, NC, Steven W. Shaw, Shawlaw Legal PLLC, Clinton, UT, David J. Martin, David J. Martin PLLC, Apex, NC, for Defendant The Estates (UT), LLC.

John David Matheny, II, Mooresville, NC, Steven W. Shaw, Shawlaw Legal PLLC, Clinton, UT, David J. Martin, David J. Martin PLLC, Apex, NC, Robert E. Culver, The Culver Firm, P.C., Tacoma, WA, for Defendant Carolyn Souther.

Steven W. Shaw, Shawlaw Legal PLLC, Clinton, UT, David J. Martin, David J. Martin PLLC, Apex, NC, for Defendant GG Irrevocable Trust.

John David Matheny, II, Mooresville, NC, Joseph Houchin, Kaufman & Canoles, Raleigh, NC, Steven W. Shaw, Shawlaw Legal PLLC, Clinton, UT, David J. Martin, David J. Martin PLLC, Apex, NC, for Defendant NC Bidding-2, LLC.

GG Irrevocable Trust, Pro Se.

MEMORANDUM OPINION AND ORDER

Catherine C. Eagles, District Judge.

In September 2022, two separate groups of defendants filed a motion for attorney's fees. The Court denied the motion and initiated proceedings to determine if the moving defendants and their two attorneys, Steven W. Shaw and John David Matheny, II, had violated Federal Rule of Civil Procedure 11(b) and 28 U.S.C. § 1927 by filing the motion. The motion was unsupported in law and fact and was unreasonable under the circumstances. Mr. Shaw and moving defendant Craig Brooksby filed the motion for an improper purpose and in bad faith, and by filing it, Mr. Shaw vexatiously multiplied the proceedings. Mr. Shaw and Mr. Matheny violated Rule 11(b)(2) and (3), Mr. Shaw and Mr. Brooksby violated Rule 11(b)(1), and Mr. Shaw violated § 1927. Sanctions are appropriate.

I. Background

In September 2022, five months after the jury ruled for the plaintiffs, two separate groups encompassing many of the defendants filed a single motion for attorney's fees for time spent on limited aspects of the case where they claimed to be the prevailing parties. Doc. 306. The "Group 1" defendants asked the Court for an order requiring the plaintiffs to pay them $148,795 for their attorney's fees related to defending against class certification. Id. at 3. The "Group 2" defendants wanted the plaintiffs to pay them a total of $100,000 in attorney's fees because these defendants were each dismissed from the case before trial. Id.

Contrary to the requirements of the Local Rules, see LR 7.3(a), the moving defendants did not support the motion with a brief. Nor did they cite in the motion any statutory or case law authority to support the request for attorney's fees, ignoring the well-established provisions of the Federal Rules of Civil Procedure. Instead, they relied on conclusory assertions with no factual support, as detailed below. See infra pages 474-78; see also Doc. 356 at 2-6.

The Court denied the motion as frivolous and initiated proceedings to determine if the moving defendants and their two attorneys who signed the motion, Mr. Shaw and Mr. Matheny, should be sanctioned. See generally id. at 7-10. Specifically, the Court ordered:

(1) Mr. Shaw and Mr. Matheny to show cause why they should not be sanctioned for violating Rule 11(b)(2) and (3) of the Federal Rules of Civil Procedure by presenting a written motion for attorney's fees that was without evidentiary support and unwarranted by law;

(2) The moving defendants, Mr. Shaw, and Mr. Matheny to show cause why they should not be sanctioned for violating Rule 11(b)(1) of the Federal Rules of Civil Procedure by presenting a written motion for attorney's fees for the improper purpose of wasting plaintiffs' counsel's time and increasing their expenses; and (3) Mr. Shaw and Mr. Matheny to show cause why they should not be sanctioned for multiplying the proceedings unreasonably and vexatiously in violation of 28 U.S.C. § 1927.

Mr. Shaw, Mr. Matheny, and the moving defendants each filed briefs and evidence. See Docs. 371, 371-1 (Mr. Shaw's response and evidence); Docs. 369, 369-1 (Mr. Matheny's response and evidence); Docs. 372, 372-1 (moving defendants' response and evidence). The plaintiffs also filed a response and evidence, Docs. 376, 376-1, 376-2, and Mr. Matheny filed a reply. Doc. 388.

One of the moving defendants, Avirta, LLC, filed a bankruptcy petition and proceedings as to it were stayed. Doc. 389. The bankruptcy petition was dismissed, Doc. 391, and the stay has been lifted. Text Order 02/28/2023.

II. Federal Rule of Civil Procedure 11(b)-(c)

Federal Rule of Civil Procedure Rule 11(b) prohibits attorneys from filing motions or other papers with the court if they are made for improper purposes or unsupported by law or fact. The rule provides, in relevant part:

By presenting to the court a pleading, written motion or other paper—whether by signing, filing, submitting, or later advocating it—an attorney or unrepresented party certifies that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:

(1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation;

(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery[.]

Fed. R. Civ. P. 11(b).

If an attorney files a motion that does not comply—i.e., it is presented for an improper purpose or without legal or factual support—then the rule provides for sanctions. See Fed. R. Civ. P. 11(c). While the rule is directed to the attorney's signature, the Court may impose an appropriate sanction on any attorney, law firm, or party that "is responsible for the violation." Fed. R. Civ. P. 11(c)(1); see also 5A Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1336.2 (4th ed. 2022) [hereinafter Wright & Miller]; Aldmyr Sys., Inc. v. Friedman, 679 F. App'x 254, 255-56 (4th Cir. 2017) (per curiam) (unpublished) (affirming sanctions against party-corporations based on improper purpose).

Rule 11 permits courts to impose sanctions post-judgment and based on post-judgment misconduct. See Bell v. Vacuforce, LLC, 908 F.3d 1075, 1081 (7th Cir. 2018) (affirming "a court-initiated monetary sanction for post-judgment misconduct"); Barber v. Miller, 146 F.3d 707, 711 (9th Cir. 1998) ("Nothing in [Rule 11] . . . prevents the district court from taking [sua sponte] action after judgment."); Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 152 (4th Cir. 2002) ("Rule 11 sanctions may be imposed when a case is no longer pending" (citing Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990)).

Courts must comply with certain procedural requirements before imposing sanctions under Rule 11, which vary depending on whether a party filed a motion for sanctions or the court initiated the sanctions proceeding. When initiated by a court, as here, Rule 11(c)(3) requires notice and an opportunity "to show cause why conduct specifically described in the order has not violated Rule 11(b)." Fed. R. Civ. P. 11(c)(3); see also In re Bees, 562 F.3d 284, 289 (4th Cir. 2009) (finding abuse of discretion when the district court sua sponte sanctioned an attorney without first ordering her to show cause on the specific issue). Because the safe harbor provision applicable to Rule 11 proceedings initiated by a litigant does not apply to court-initiated sanctions proceedings, see Brickwood Contractors, Inc. v. Datanet Eng'g, Inc., 369 F.3d 385, 389 n.2 (4th Cir. 2004) (en banc), courts should impose sanctions only for particularly egregious violations, "akin to a contempt of court." In re Bees, 562 F.3d at 287; see also Lewis v. W. Va. Sup. Ct. of App., 985 F. Supp. 2d 776, 780 (S.D.W. Va. 2013).

Consistent with Rule 11(c)(3), the Court issued its Show Cause Order in November 2022 and provided Mr. Shaw, Mr. Matheny, and the moving defendants with an opportunity to be heard. See Doc. 356. All have taken advantage of the opportunity to submit evidence and briefs.

A. Rule 11(b)(2) and (3)

By signing a motion, an attorney certifies that "the claims, defenses, and other legal contentions" contained within "are warranted by existing law or by a nonfrivolous argument," Fed. R. Civ. P. 11(b)(2), and that "the factual contentions have evidentiary support" or "will likely have evidentiary support" after further discovery or investigation. Fed. R. Civ. P. 11(b)(3). Rule 11 "imposes on any party who signs a pleading, motion, or other paper . . . an affirmative duty to conduct a reasonable inquiry into the facts and the law before filing." Bus. Guides, Inc. v. Chromatic Commc'ns Enters., 498 U.S. 533, 551, 111 S.Ct. 922, 112 L.Ed.2d 1140 (1991). "[T]he applicable standard is one of reasonableness under the circumstances." Id.; see also In re Weiss, 111 F.3d 1159, 1170 (4th Cir. 1997).

In evaluating whether a motion lacks legal support in violation of Rule 11(b)(2), "the c...