United States v. 2005-09-29 | 03-16532 | LEVINSON VBALDWIN | precedential | opinion |

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
 DEBORAH HOLGATE; ROBERT
HOLGATE,
Plaintiffs,
and
BARRY LEVINSON, No. 03-16532
Appellant, D.C. No.
 v. CV-02-00183-RLH
JOHN BALDWIN; COMMUNITY OPINION
BANK OF NEVADA; HARD MONEY
FUNDING; JOHN BALDWIN TRUST;
LINDA M. NEWELL; MICHAEL J.
NEWELL; MIKE NEWELL,
Defendants-Appellees. 
Appeal from the United States District Court
for the District of Nevada
Roger L. Hunt, District Judge, Presiding
Argued and Submitted
February 14, 2005—San Francisco, California
Filed September 30, 2005
Before: Dorothy W. Nelson, William A. Fletcher, and
Raymond C. Fisher, Circuit Judges.
Opinion by Judge D.W. Nelson
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COUNSEL
Algimantas J. Bruzas (argued), Las Vegas, Nevada; Barry
Levinson, Law Offices of Barry Levinson, Las Vegas,
Nevada, for the appellant.
Gordon H. Warren (argued), D. Chris Albright (argued) and
G. Mark Albright, Albright, Stoddard, Warnick & Palmer,
Las Vegas, Nevada; Philip M. Ballif and Gordon H. Warren,
Jones Vargas, Las Vegas, Nevada; Steve Morris and Jenny
Sullivan Parker, Morris, Pickering & Sanner, Las Vegas,
Nevada, for the appellees.
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OPINION
D.W. NELSON, Circuit Judge:
Barry Levinson appeals the district court’s award of sanc-
tions under Federal Rule of Civil Procedure 11 to (1) John
Baldwin; (2) Michael and Linda Newell, Hard Money, Inc.,
and the John Kevin Baldwin Irrevocable Trust (hereinafter
“the Newell defendants”); and (3) the Community Bank of
Nevada (hereinafter “Community Bank”). In total, the district
court ordered Levinson to pay $12,000 in sanctions. Levinson
also appeals the district court’s decision denying sanctions
against the Newell defendants and Community Bank. The
Newell defendants cross-appeal the amount of the sanctions
as insufficient. We affirm the district court’s award of Rule 11
sanctions to John Baldwin and the Newell defendants, but
reverse the award of sanctions to Community Bank. We also
affirm the district court’s denial of sanctions to Levinson.
FACTS AND PROCEDURAL BACKGROUND
This appeal centers on the appropriateness of Rule 11 sanc-
tions against an attorney who filed a legally baseless com-
plaint. On February 7, 2002, Levinson, counsel for Deborah
and Robert Holgate, filed the complaint at issue in federal dis-
trict court. In this complaint, the Holgates alleged federal civil
rights and RICO violations, as well as state causes of action,
resulting from the construction and financing of their home.
In brief, the Holgates borrowed $640,000 from the Commu-
nity Bank of Nevada to build their “dream home.” When the
costs of building their home ran over, the Holgates borrowed
an additional $550,000 from Michael Newell and the Baldwin
Trust to finish the job. After the Holgates defaulted on this
loan, Newell and the Baldwin Trust foreclosed and completed
the construction. The Holgates alleged that the defendants’
actions related to the home’s financing violated their civil
rights and were otherwise in violation of state and federal law.
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In reviewing the district court’s award of sanctions we must
determine whether each defendant satisfied Rule 11’s safe
harbor requirement. The timing of the service and filing of
each defendant’s motion for Rule 11 sanctions against Levin-
son are central to this determination. While each of the three
defendants requested sanctions against Levinson based on the
filing of the complaint, each defendant did so at different
times in the course of the litigation.
On March 18, 2002, John Baldwin served Levinson with a
proposed motion for Rule 11 sanctions. A month later, on
April 17, 2002, Baldwin filed his motion with the district
court. Rather than serving Levinson with their own motion,
on August 19, 2002, the Newell defendants moved to join
Baldwin’s motion for sanctions against Levinson. On August
22, 2002, the district court granted Levinson’s motion to with-
draw as counsel due to a conflict of interest. During the same
hearing, the district court cautioned Levinson that it was
retaining jurisdiction over him for any future Rule 11
motions. Community Bank eventually served Levinson with
its own motion for sanctions almost six months later, on Feb-
ruary 3, 2003.
On March 17, 2003, plaintiffs, through new counsel, moved
for voluntary dismissal of their complaint under Federal Rule
of Civil Procedure 41(a)(2). The district court dismissed the
plaintiffs’ federal claims with prejudice and their state claims
without prejudice, but retained jurisdiction over the parties to
consider the imposition of sanctions. After this dismissal,
Community Bank filed its motion for Rule 11 sanctions with
the district court on May 27, 2003.
On the same date, the district court granted all three defen-
dants’ motions for sanctions against Levinson. Levinson
responded by filing motions for sanctions against Community
Bank and the Newell defendants. The district court denied
Levinson’s motions, and he timely appealed these denials as
well as the sanctions awarded against him.
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STANDARD OF REVIEW
We review the district court’s imposition of Rule 11 sanc-
tions, as well as its refusal to do so, for an abuse of discretion.
See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405
(1990); Retail Flooring Dealers of Am., Inc. v. Beaulieu of
Am., LLC, 339 F.3d 1146, 1150 (9th Cir. 2003). Abuse of dis-
cretion may be found if the district court based its decision on
an erroneous view of the law or on a clearly erroneous assess-
ment of the evidence. See Retail Flooring Dealers, 339 F.3d
at 1150.
DISCUSSION
I. The District Court Did Not Err in Finding the
Complaint Frivolous
[1] An attorney is subject to Rule 11 sanctions, among
other reasons, when he presents to the court “claims, defenses,
and other legal contentions . . . [not] warranted by existing
law or by a nonfrivolous argument for the extension, modifi-
cation, or reversal of existing law or the establishment of new
law[.]” Fed. R. Civ. P. 11(b)(2). When, as here, a “complaint
is the primary focus of Rule 11 proceedings, a district court
must conduct a two-prong inquiry to determine (1) whether
the complaint is legally or factually baseless from an objec-
tive perspective, and (2) if the attorney has conducted a rea-
sonable and competent inquiry before signing and filing it.”
Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002)
(internal quotations and citation omitted). As shorthand for
this test, we use the word “frivolous” “to denote a filing that
is both baseless and made without a reasonable and compe-
tent inquiry.” Moore v. Keegan Mgmt. Co (In re Keegan
Mgmt. Co., Sec. Litig.), 78 F.3d 431, 434 (9th Cir. 1996). The
district court determined that the complaint filed by Levinson
was frivolous and therefore a proper basis for the Rule 11
sanctions against him. We agree.
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A. Adequate Legal Basis
[2] The complaint filed by Levinson alleged a due process
violation based on 42 U.S.C. § 1985(3), which prohibits con-
spiracies “for the purpose of depriving, either directly or indi-
rectly, any person or class of persons of the equal protection
of the laws[.]” 42 U.S.C. § 1985(3). The original purpose of
§ 1985(3), which was passed as the Ku Klux Klan Act of
1871, was to enforce the rights of African Americans and
their supporters. See Sever v. Alaska Pulp Corp., 978 F.2d
1529, 1536 (9th Cir. 1992). We have extended § 1985(3) to
protect non-racial groups only if “the courts have designated
the class in question a suspect or quasi-suspect classification
requiring more exacting scrutiny or . . . Congress has indi-
cated through legislation that the class require[s] special pro-
tection.” Id. (internal quotations and citation omitted).
Plaintiffs did not allege in their complaint that they belong to
a racial group or an otherwise protected class, nor did they
allege that the defendants intentionally discriminated against
them on such grounds. Later, however, the Holgates con-
tended that they were members of the protected class of “con-
sumers looking to build their dream home.” Not surprisingly,
plaintiffs cited no case law recognizing such a class as merit-
ing heightened protection. Nor can we consider their argu-
ment one for a non-frivolous extension of existing case law,
as the Supreme Court has held that “group actions generally
resting on economic motivations should be deemed beyond
the reach of § 1985(3).” United Bhd. of Carpenters & Joiners
of Am. v. Scott, 463 U.S. 825, 839 (1983).
[3] The complaint also failed to allege evidence of a con-
spiracy and an act in furtherance of that conspiracy, which are
required elements of a § 1985(3) action. Sever, 978 F.2d at
1536. It alleged that Newell and others conspired to violate
the Holgates’ civil rights, but it did not allege that a specific
act was committed in furtherance of this conspiracy. As the
complaint failed on its face to allege a required element of a
§ 1985(3) claim, the district court did not abuse its discretion
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by finding it lacked adequate legal support. Even under the
liberal notice pleading rules set out by the Federal Rules of
Civil Procedure, the Holgates were required to do more. Fed.
R. Civ. P. 8(a)(2). While Rule 8(a)(2) does not require plain-
tiffs to lay out in detail the facts upon which their claims are
based, it does require plaintiffs to provide “a short and plain
statement of the claim” to give the defendants fair notice of
what the claim is and the grounds upon which it is based. See
Swierkiewicz v. Sorema, N. A., 534 U.S. 506, 512 (2002);
Leatherman v. Tarrant County Narcotics Intelligence &
Coordination Unit, 507 U.S. 163, 168 (1993). The Holgates’
complaint failed even this minimal test.
[4] We have held that “the mere existence of one non-
frivolous claim” in a complaint does not immunize it from
Rule 11 sanctions. Townsend v. Holman Consulting Corp.,
929 F.2d 1358, 1364 (9th Cir. 1990). Accordingly, because
we conclude that the plaintiffs’ § 1985 claim lacked legal
merit, we need not assess the legal support for the Holgates’
RICO or state law claims.
B. Reasonable Inquiry
[5] The reasonable inquiry test is meant to assist courts in
discovering whether an attorney, after conducting an objec-
tively reasonable inquiry into the facts and law, would have
found the complaint to be well-founded. Christian, 286 F.3d
at 1127. The fact that the Holgates’ second counsel recom-
mended that they request voluntary dismissal of the complaint
suggests that Levinson did not conduct a reasonable inquiry
before filing the complaint. When the plaintiffs filed for vol-
untary dismissal, no discovery had been conducted. Their new
attorney, therefore, did not have the benefit of any informa-
tion that Levinson could not have acquired through a reason-
able legal investigation. Even the most cursory legal inquiry
would have revealed the required elements of the federal
claims asserted, elements that the Holgates’ complaint did not
allege. See Truesdell v. S. Cal. Permanente Med. Group, 293
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F.3d 1146, 1153 (9th Cir. 2002). Accordingly, the district
court did not abuse its discretion in concluding that Levinson
failed to conduct an adequate investigation before filing the
complaint.
II. Appropriateness of the Sanctions Awarded to Each
Defendant
The fact that Levinson was allowed to withdraw as counsel
due to a conflict of interest does not protect him from sanc-
tions based on a filing that he made before that withdrawal.
Bader v. Itel Corp. (In re Itel Sec. Litig.), 791 F.2d 672, 675
(9th Cir. 1986) (observing that case law provides “absolutely
no hint . . . that a lawyer may escape sanctions for misconduct
simply by withdrawing from a case before opposing counsel
applies for sanctions”). The signing requirement in Rule 11
makes clear that any attorney who, at any time, certified to the
court that a pleading complies with Rule 11 is subject to the
rule, even if the attorney later withdraws from the case.1
Moreover, when Levinson was permitted to withdraw, the dis-
trict court warned him “that if the [Rule 11] motion is raised
again, even though you may be permitted to withdraw, the
Court will retain jurisdiction [over] you with respect to the
resolution of that motion.”
[6] The 1993 Amendments to Rule 11, however, place
stringent notice and filing requirements on parties seeking
sanctions. When Rule 11 sanctions are initiated by motion of
1Fed. R. Civ. P. 11(b) provides:
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 reasonable under the circumstances, . . . 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.
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a party, that motion must be separate “from other motions or
requests” and must “describe the specific conduct alleged to
violate” Rule 11(b). Fed. R. Civ. P. 11(c)(1)(A). In addition,
the Rule’s safe harbor provision requires parties filing such
motions to give the opposing party 21 days first to “withdraw
or otherwise correct” the offending paper. Id. We enforce this
safe harbor provision strictly. See Radcliffe v. Rainbow Const.
Co., 254 F.3d 772, 788-89 (9th Cir. 2001) (citing Barber v.
Miller, 146 F.3d 707, 710-11 (9th Cir. 1998)). We must
reverse the award of sanctions when the challenging party
failed to comply with the safe harbor provisions, even when
the underlying filing is frivolous. Barber, 146 F.3d at 711.
A. Baldwin
Levinson concedes that Baldwin satisfied the safe harbor
provisions of Rule 11. On March 18, 2002, Baldwin first
served Levinson with a letter and a copy of the motion he
intended to file if the plaintiffs did not remove Baldwin as a
defendant or cure the deficiencies in the legal claims against
him. Baldwin then waited over 21 days before filing this
motion for sanctions with the district court. At the time of fil-
ing, Levinson was still acting as counsel for the Holgates and
he had not withdrawn or otherwise amended the complaint in
response to Baldwin’s letter. On August 22, 2002, the district
court denied Baldwin’s initial motion for sanctions without
prejudice and allowed Levinson to withdraw as counsel, but
retained jurisdiction over Levinson for future Rule 11
motions. This was not the end of the matter. On March 25,
2003, Baldwin re-filed his Rule 11 motion and again served
Levinson.
[7] We hold that Levinson received all the process due to
him when Baldwin initially satisfied the safe harbor require-
ments of Rule 11. There was no need for Baldwin to satisfy
a second safe harbor period when he re-filed his Rule 11
motion in 2003. See Fed. R. Civ. P. 11 advisory committee’s
notes to 1993 amends. (“These provisions are intended to pro-
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vide a type of ‘safe harbor’ against motions under Rule 11 in
that a party will not be subject to sanctions on the basis of
another party’s motion unless, after receiving the motion, it
refuses to withdraw that position or to acknowledge candidly
that it does not currently have evidence to support a specified
allegation.”). During the entire safe harbor period in 2002,
Levinson was still acting as the Holgates’ counsel and there-
fore had ample ability and opportunity to avoid Rule 11 sanc-
tions by withdrawing or otherwise correcting the offending
paper.
B. The Newell Defendants
Rather than serving Levinson with a separate notice of their
intention to seek Rule 11 sanctions and then waiting 21 days
before filing a motion with the district court, on August 19,
2002, the Newell defendants filed a motion to join in Bal-
dwin’s motion for sanctions. Because they served Levinson
with their joinder motion the same day they filed it with the
district court, the joinder motion was the first notice Levinson
had of the Newell defendants’ intention to seek sanctions
against him. Three days after receiving this notice, Levinson
withdrew as counsel for the Holgates. On April 4, 2003, the
Newell defendants filed a second motion with the district
court requesting Rule 11 sanctions against Levinson.
[8] The safe harbor period commenced when the Newell
defendants simultaneously filed their joinder motion and
served Levinson. See Fed. R. Civ. P. 11 advisory committee’s
notes to 1993 amends. (“[T]he ‘safe harbor’ period begins to
run only upon service of the motion.”). Although Levinson
remained counsel for the Holgates for only three days after he
was served with this motion, there is nothing in the record to
indicate that he did anything to withdraw or otherwise correct
the complaint in light of this motion. Because Levinson had
prior notice of the frivolousness of the complaint (from the
Baldwin motion), and notice of a second forthcoming motion
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for sanctions, we conclude that the district court did not abuse
its discretion by awarding sanctions to the Newell defendants.
C. The Community Bank of Nevada
On January 27, 2003, Community Bank filed a motion for
sanctions under Rule 11, but failed to serve a copy on Levin-
son until February 3, 2003. The district court denied this
motion on March 4, 2003. Community Bank concedes that it
failed to satisfy the safe harbor provision with respect to this
motion. On May 15 and 16, 2003, Community Bank re-filed
its Rule 11 motion with the court and served a copy on Levin-
son, respectively. Levinson argues that Community Bank
failed to satisfy the safe harbor provision. We agree and
reverse the district court’s award of Rule 11 sanctions to
Community Bank.
[9] Despite the fact that one of its co-defendants had served
Levinson with a motion seeking Rule 11 sanctions on March
18, 2002, Community Bank waited over ten months before
taking any action to seek sanctions against Levinson. When
deciding a motion for sanctions under Rule 11, a district court
should consider when the opposing counsel was served with
the motion. “Ordinarily the motion should be served promptly
after the inappropriate paper is filed, and, if delayed too long,
may be viewed as untimely.” Fed. R. Civ. P. 11 advisory
committee’s notes to 1993 amends. It is hard to view Commu-
nity Bank’s service of its May 2003 motion as timely when
the underlying complaint was filed over a year earlier on Feb-
ruary 7, 2002. In addition, by the time Community Bank
served Levinson with its motion for sanctions, on February 3,
2003, over five months had passed since Levinson’s with-
drawal as the Holgates’ attorney. At this point, Levinson
essentially had no power to correct the offending paper or to
counsel the Holgates to withdraw it.
[10] Community Bank argues that even if it did not inde-
pendently satisfy safe harbor, it satisfied the requirement by
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styling its motion for sanctions as a joinder to Baldwin’s
properly filed Rule 11 motion. We disagree. One purpose of
the safe harbor requirement is to provide parties with proper
notice of the allegations against them and an adequate oppor-
tunity to cure the alleged deficiencies. Fed. R. Civ. P. 11 advi-
sory committee’s notes to 1993 amends. (“Explicit provision
is made for litigants to be provided notice of the alleged viola-
tion and an opportunity to respond before sanctions are
imposed.”). We are not convinced that a party receives suffi-
cient notice of the allegations against him when only one of
several co-defendants indicates its intention to seek sanctions.
When Baldwin originally served Levinson with his Rule 11
motion, Levinson would have considered the fact that the
other defendants had not filed motions in deciding on his
response. By the time the Newell defendants filed their
motion, however, Levinson would have realized that the situa-
tion had become more serious. Of course, at this time Levin-
son still served as counsel to the Holgates and could advise
them concerning the motion. Had Levinson known that all of
the defendants were seeking sanctions against him based on
the filing of the Holgates’ complaint, he may well have taken
more serious steps to convince the Holgates to withdraw the
complaint or otherwise find a way to correct the complaint
within the meaning of Rule 11. We hold that the district court
clearly erred in determining that Community Bank had com-
plied with the safe harbor requirements despite the fact that it
failed to provide Levinson with independent notice of its
intent to seek sanctions and the required 21 days in which to
cure the alleged problem.
On remand, the district court may wish to reapportion the
amount of sanctions awarded to Baldwin and the Newell
defendants. The defendants collectively sought over $100,000
in costs, which they documented for the district court, but the
district court opted to impose only $12,000 in sanctions
against Levinson based on its conclusion that this amount was
sufficient to deter Levinson from filing frivolous complaints
in the future. See Fed. R. Civ. P. 11(c)(2) (limiting Rule 11
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sanctions “to what is sufficient to deter repetition of [the chal-
lenged] conduct or comparable conduct by others similarly
situated”). The district court awarded $3,000 in sanctions to
Baldwin, $5,000 to the Newell defendants, and $4,000 to
Community Bank. On remand, the district court should con-
sider whether the $8,000 in sanctions awarded to Baldwin and
the Newell defendants, which we affirm, is sufficient to deter
Levinson or others like him.
III. The District Court Did Not Err in Denying Sanctions
Against All Defendants
Levinson appeals the district court’s refusal to impose sanc-
tions under Rule 41(a) and Rule 11 against all defendants
except Baldwin. Specifically, Levinson argues that each of the
defendants should be sanctioned for failing to cite “adverse”
authority in their sanctions motions. This argument must fail,
as we have held that imposing Rule 11 sanctions for the fail-
ure to cite adverse authority would be unduly burdensome to
even “a diligent lawyer.” Golden Eagle Distrib. Corp. v. Bur-
roughs Corp., 801 F.2d 1531, 1542 (9th Cir. 1986). Accord-
ingly, the district court did not abuse its discretion by denying
the award of sanctions to Levinson.
Additionally, Levinson argues that Community Bank
should be sanctioned for: (1) failing to provide him with ade-
quate safe harbor when it filed for Rule 11 sanctions; (2) cit-
ing unpublished Ninth Circuit dispositions in a reply brief;
and (3) multiplying the litigation by opposing plaintiffs’
motion for voluntary dismissal, in violation of 28 U.S.C.
§ 1927. The appropriate remedy for Community Bank’s fail-
ure to satisfy safe harbor is a denial of its request for Rule 11
sanctions against Levinson. See Radcliffe, 254 F.3d at 788-89.
With respect to Community Bank’s citation to unpublished
opinions, Community Bank remedied this problem through
errata filed with the court on June 25, 2003, within the 21-day
safe harbor period. The district court did not err when it deter-
mined that sanctions based on this error were not warranted.
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See Fed. R. Civ. P. 11 advisory committee’s notes to 1993
amends. (noting that “a party will not be subject to sanctions
on the basis of another party’s motion unless, after receiving
the motion, it refuses to withdraw that position or to acknowl-
edge candidly that it does not currently have evidence to sup-
port a specified allegation”). Lastly, Levinson’s claim that
Community Bank multiplied the litigation and therefore
should be sanctioned under 28 U.S.C. § 1927 lacks merit. “In-
vocation of a federal court’s inherent power to sanction
requires a finding of bad faith.” Miller v. Cardinale (In re
Deville), 361 F.3d 539, 548 (9th Cir. 2004) (quoting Fell-
heimer, Eichon & Braverman v. Charter Technologies, 57
F.3d 1215, 1225 (3d Cir. 1995)). From the instant the com-
plaint was filed naming it as a defendant, Community Bank
attempted to have the case dismissed. Therefore, the district
court did not err when it found that Levinson failed to show
that Community Bank acted in bad faith to multiply this liti-
gation.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s
decision to award Rule 11 sanctions to Baldwin and the New-
ell defendants, but REVERSE the award of sanctions to Com-
munity Bank. We also AFFIRM the district court’s decision
to deny sanctions to Levinson.
AFFIRMED in part and REVERSED in part,
REMANDED for consideration of the amount of sanctions
awarded on the motions of Baldwin and the Newell defen-
dants.
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