Free Order - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 RICKY LEE HANCOCK, et al., 13 Defendant. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

MERITAGE HOMES CORP., et al., Plaintiff, vs.

) ) ) ) ) ) ) ) ) ) ) )

No. CV 04-0384-PHX-ROS ORDER

A hearing was conducted on December 7, 2005, for Defendant Greg Hancock ("Defendant") and his counsel, Mr. Frisbee, to show cause why they should not be cited for contempt and have sanctions imposed against them for failing to adhere to this Court's Order requiring dismissal of Defendant's state cause of action. The Court finds that Mr. Frisbee acted in bad faith such that sanctions are warranted pursuant to the inherent powers of the Court.1 I. Background Plaintiffs initiated this action on February 24, 2004 alleging Lanham Act violations, breach of contract and other claims (Doc. #1). On September 8, 2004, Defendant Hancock sued Plaintiff Meritage, its executive officers, and Snell & Wilmer, counsel for Plaintiff, in Arizona State Court for filing this action alleging common law liability, breach of contract,

The Court finds that Defendant Hancock escapes sanctions for now.
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interference with contract, bad faith and unfair dealing, unjust enrichment, and abuse of process and malicious prosecution. On December 7, 2004, Defendant filed and served his answer to the first amended complaint, and alleged counter-and third-party claims against Meritage, its officers, and its attorneys, which are virtually identical to those he asserted in the state court case. See Lodged Answer To First Amended Complaint With Counterclaim and Third Party Complaint on 12/7/04. At a discovery dispute hearing on March 11, 2005, the Court inquired why the state action was filed, and Mr. Frisbee responded that he believed the Court lacked subject matter jurisdiction and to avoid the statute of limitations and preserve his client's supplemental claims, it was necessary to initiate the state cause of action. See Mar. 11, 2005 Transcript 49:25-54:7. In addressing these concerns, the Court found subject matter jurisdiction, and stated that if not mistaken, the statute of limitations was tolled on the supplemental claims while in federal court, thereby alleviating the need to initiate a separate action in state court. See id. at 53. At a subsequent discovery dispute hearing on March 25, 2005, Mr. Frisbee conceded the tolling issue, and indicated that he would not dismiss the state court cause of action. See Footnote 6. Importantly, he did not inform the Court that it was improper to order him to dismiss his state cause of action because of the Anti-Injunction Act. Following the hearing, the Court ordered Defendant to dismiss his state cause of action with prejudice in Arizona Superior Court within ten days of the Court's Order. See Order of April 26, 2005 (Doc. #157). On May 10, 2005, Defendant and Mr. Frisbee filed a Petition For Writ of Mandamus to the Ninth Circuit for relief from the Court's April 26, 2005 Order. See Plaintiff's Motion For Order To Show Cause, Exh. 1, Petition For Writ of Prohibition and Mandamus ("Petition") (Doc. #167). At issue was whether this Court could order Defendant to dismiss his state action with prejudice where such dismissal constitutes res judicata regarding his identical federal claims. See Petition p. 2. In response to this Petition, on May 12, 2005, the Court modified its order continuing to require dismissal of his state action but without prejudice ("The Dismissal Order") (Doc. -2Document 266 Filed 01/19/2006 Page 2 of 12

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#164). On May 19, 2005, Plaintiffs filed a Motion For Order To Show Cause why Defendant should not be held in contempt for failing to abide by the Amended Dismissal Order (Doc. #167). Defendant responded in opposition on May 31, 2005 and obliquely requested the Court stay the order until the Ninth Circuit ruled on the Petition (Doc. #175). At no time did the Court stay its April 26, 2005 Order. However, the Court deferred ruling on the initial motion for contempt until the Ninth Circuit's decision. On August 10, 2005, the Ninth Circuit denied the Petition for failure to demonstrate that the case warranted intervention by means of the extraordinary remedy of mandamus (Doc. #197). Plaintiff filed a renewed Motion For Order To Show Cause (Doc. #200) on August 12, 2005, to which the Defendant and Mr. Frisbee responded on August 22, 2005 (Doc. #205). Plaintiff replied on September 1, 2005 (Doc. #208). The Court granted Plaintiff's Motion For Order To Show Cause, and ordered the Defendant and Mr. Frisbee to appear on December 7, 2005 (Doc. #219). Defendant and Mr. Frisbee responded in opposition to the Court's Order To Show Cause on December 5, 2005 (Doc. #225), and a hearing was held on December 7, 2005. Defendant filed a Motion For Withdrawal of this Court's May 31, 2005 Dismissal Order on December 13, 2005 (Doc. #235). II. Legal Standard Federal courts have the power to enforce their orders through civil contempt. See Spallone v. United States, 493 U.S. 265, 276 (1990); Hook v. State of Ariz., 907 F. Supp. 1326, 1339 (D. Ariz. 1995). 18 U.S.C. § 401(3) provides, in pertinent part: A court of the United States shall have power to punish by fine or imprisonment . . . . at its discretion, such contempt of its authority, and none other, as -(1) Misbehavior of any person in its presence or so near thereto as to obstruct the administration of justice; (2) Misbehavior of any of its officers in their official transactions; (3) Disobedience or resistance to lawful writ, process, order, rule, decree, or command. In its Order To Show Cause, this Court stated that in determining whether the exercise of

26 contempt powers is appropriate, the moving party has the initial burden of providing clear 27 and convincing evidence that a specific and definite order of the Court has been violated. 28 -3Case 2:04-cv-00384-ROS Document 266 Filed 01/19/2006 Page 3 of 12

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See Hook, 907 F. Supp. at 1341. The burden then shifts to the party violating the order to show that the party "took every reasonable step to comply." Id. The Court may find that contempt is not the most effective means for sanctioning the parties. Where the attorney and not the party is responsible for the underlying conduct, the Court may find it more appropriate to issue sanctions pursuant to 28 U.S.C. § 1927, which provides: Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies 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. This power is both broader and narrower than other means of imposing sanctions. It is broader in that it applies to a full range of litigation abuses and narrower in that it requires a finding of bad faith where other methods for imposing sanctions do not. See Chambers v. NASCO, Inc., 501 U.S. 32, 46 (1991). A finding of bad faith is not prohibitive, however, because the court can rely upon a combination of factors. See Salstrom v. Citicorp Credit Servs., 74 F.3d 183, 185 (9th Cir. 1996). Though mere recklessness, without more, does not justify sanctions under 28 U.S.C. § 1927, sanctions are available for various types of willful actions, including recklessness, when combined with an additional factor, such as frivolousness, harassment or improper purpose. See Fink v. Gomez, 239 F.3d 989, 993-94 (9th Cir. 2001). When the party's conduct is either not within the reach of the federal rules or the statute, it may impose sanctions pursuant to its inherent powers. See Chambers, 501 U.S. at 43. The inherent power is "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. (citing Link v. Wabash R. Co., 370 U.S. 626, 630-31 (1962)). Because of its potency, however, courts must exercise their inherent powers with restraint and good judgment. See Chambers, 501 U.S. at 43 (citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 764 (1980)). Within these criteria, discretion may be exerted to "fashion an appropriate sanction for conduct which abuses the judicial process," including the "less -4Document 266 Filed 01/19/2006 Page 4 of 12

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severe sanction" of an assessment of attorney's fees. Chambers, 501 U.S. at 44-45; Aloe Vera of America, Inc. v. United States, 376 F.3d 960, 964-65 (9th Cir. 2004) ("[F]ederal courts are vested with inherent powers enabling them to manage their cases and courtrooms effectively and to ensure obedience to their orders"). To impose sanctions on counsel under its inherent authority, the district court must make an explicit finding that counsel's conduct constituted bad faith. See Christian v. Mattel, Inc., 286 F.3d 1118, 1131 (9th Cir. 2002). III. Analysis It has been nearly eight months since the Court ordered Defendant to dismiss his state law action, and neither Defendant nor Mr. Frisbee provided the Court with a legitimate reason justifying noncompliance.2 When Defendant, through Mr. Frisbee, initially responded to Plaintiff's First Motion To Show Cause on May 24, 2005, he stated without authority that "[t]o suggest that a timely petition to the Ninth Circuit Court of Appeals for relief from an order is 'ignoring' or 'defying' the order is to engage in absolutely breathtaking absurdity." Defendant Hancocks'

[Response] To Plaintiff's Motion For Order To Show Cause p. 1-2. Essentially, it is Mr. Frisbee's position today that because he filed a Petition in the Ninth Circuit pursuant to Rule 21 and not a formal appeal, he was not constrained by the Appellate Rules of Civil Procedure to obtain a stay of the litigation, and somehow not required to adhere to the Court's Order until after the Ninth Circuit ruled on the underlying Petition. See Defendant Hancock's [Response] to Plaintiff's Motion For Order To Show Cause p. 2-3. Defendant's request was not made in accordance with the federal rules of civil procedure or the local rules of the District of Arizona, and as such, the Court did not construe

Mr. Frisbee avows that all decisions regarding compliance with the Dismissal Order were made by him alone, and that Defendant Greg Hancock was not involved in those decisions. See Defendant's Response To Order To Show Cause p. 8. Accordingly, at this time, the Court will analyze whether sanctions are warranted only against Mr. Frisbee. -5Document 266 Filed 01/19/2006 Page 5 of 12

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it as a procedurally appropriate motion for stay.3 The Court also awaited the decision from the Ninth Circuit which was denied on August 10, 2005, but Mr. Frisbee still failed to comply with the May 31, 2005 Order. In response to this Court's Order To Show Cause issued on November 17, 2005, Mr. Frisbee argues that he did not comply with the Court's Order because: (1) it would have required forfeiting state causes of action; (2) that the Order was "transparently invalid" because it is in violation of the Anti-Injunction Act;4 (3) relief from the Order was sought in the Ninth Circuit, and (4) though it may not have been the best course of action, Mr. Frisbee's conduct does not amount to bad faith. The Court will address each argument in turn. A. Forfeiture of State Action

Mr. Frisbee contends that complying with the Order would have required forfeiting state causes of action.5 Mr. Frisbee expressed concern that if he was successful in establishing lack of jurisdiction in this Court on the Lanham Act claim, the supplemental claims would be dismissed and because of statute of limitations, he would then be precluded from filing them in state court. See id. at 9-11. But, Mr. Frisbee did not disagree with the Court that the statute of limitations for the state court action would be tolled by the filing of the federal action. See id. at 9.

Rule 7(b) of the Federal Rules of Civil Procedure provides that (1) [a]n application to the court for an order shall be by motion which, unless made during a hearing or trial, shall be made in writing, shall state with particularity the grounds therefor, and shall set forth the relief or order sought. Local Rule 7.2 requires the moving party to "serve and file with the motion's papers a memorandum setting forth the points and authorities relied upon in support of the motion." Defendant did not file a separate motion for a stay, provide any grounds supporting the request, or file a memorandum of points and authorities in support of the motion. Partially, for these reasons, the Court did not rule on the request for stay.
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This was the first time Defendants raised this argument.

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This argument was addressed and rejected at two discovery dispute hearings on March 11, 2005 and March 25, 2005, before the April 26, 2005 order was issued. See Mar. 11, 2005 Transcript 49:25-54:7; Mar. 25, 2005 Transcript 9-18. -6Document 266 Filed 01/19/2006 Page 6 of 12

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If the April 26, 2005 dismissal with prejudice Order created res judicata issues, any such problems were alleviated by the Court's Order of May 31, 2005. Also, in the same Amended Order, the Court again expressed the view that the statute of limitations applicable to Mr. Hancock's state court action would be tolled while pending in federal court. It is evident that Mr. Frisbee's failure to dismiss the state action was not because of any valid concern over the statute of limitations, but because he did not want to delay his opportunity to be heard in state court and attempt to resolve the merits in his favor there.6 B. Validity of the Underlying Order

In his Response To Order To Show Cause, Defendant argued for the first time that the Dismissal Order violated the Anti-Injunction Act, 28 U.S.C. § 2283. See Response To Order To Show Cause pp. 10-12. Significantly, this argument was not raised in any of Defendant's previous responses to Plaintiff's Motions To Show Cause or Defendant's Petition to the Ninth Circuit. Nor was it raised as grounds for a Motion For Reconsideration. In fact, it was not brought to the Court's attention until Defendant filed his Response To Order To Show Cause on December 5, 2005, just two days before the contempt hearing. To determine bad faith, the Court must look to the reasons proferred by Mr. Frisbee for refusing to comply with the order, and not the recent upon reflection allegations for his failure to comply.7 Whether the dismissal Order violated the Anti-Injunction Act is a

At the March 25, 2005 discovery dispute, the following exchange occurred: THE COURT: Is there any question about whether or not the statute of limitations will save the cause of action as filed in superior court? MR. FRISBEE: I don't believe so. THE COURT: Is that going to be dismissed, then? MR. FRISBEE: No, it's not, your Honor. THE COURT: And why not? MR. FRISBEE: Because, when this case gets dismissed, as it ultimately will, I want to be a plaintiff in the state court, and I don't want to have to hop a whole bunch of numbers and delay two or three years to get back in court there. If the Anti-Injunction Act was the originally contemplated reason for failing to comply with the Order, Mr. Frisbee, if he chose not to raise it with the Court, surely he would have raised it in an interlocutory appeal as a matter of right pursuant to 28 U.S.C. § -7Document 266 Filed 01/19/2006 Page 7 of 12
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colorable defense and would have been an issue for this Court to consider before it issued the Order and Amended Order.8 Mr. Frisbee's Petition to the Ninth Circuit failed to cite any persuasive authority supporting the Ninth Circuit accepting jurisdiction, particularly after this Court's Amended Order. C. Defendant's and Frisbee's Course of Action

Even assuming Mr. Frisbee had some legitimate basis for a petition to the Ninth Circuit, his disregard of this Court's Order was at the time and upon reflection without any legal justification. Mr. Frisbee claims that, though it may not have been the best course of action, he appropriately sought relief from the Order by filing the Petition in the Ninth Circuit based upon his belief that the Order was unlawful and that he was not required to comply with it. In addition, considering the procedural posture of the state action and the Ninth Circuit decision, it was not prudent for him to fail and refuse to seek dismissal either immediately following this Court's Amended Dismissal Order or after the Ninth Circuit's denial in August 10, 2005 of the Petition. If Mr. Frisbee believed this Court committed legal error in issuing its Dismissal Order, the proper recourse would have been to file a motion for reconsideration. If denied, Mr. Frisbee could have sought review by interlocutory appeal, but he would have been required, as he surely knew, to file a motion to stay the Order pending resolution of the matter on appeal. Rather, Mr. Frisbee did nothing until after the Court ordered him to show cause why

1292(a)(1). In support of this conclusion, the Court notes Mr. Frisbee's considerable experience, talent and knowledge of the substantive and procedural rules in federal court. See Defendant's Response to Order To Show Cause p. 7. The Court notes that a Petition for Mandamus to the Ninth Circuit is an extraordinary remedy and is only granted "when no other realistic alternative is (or was) available to a petitioner." Cole v. U.S. Dist. Court for Dist. of Idaho, 366 F.3d 813, 817 (2004). -8Document 266 Filed 01/19/2006 Page 8 of 12
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sanctions should not be imposed.9 His belief that the Order was unlawful does not justify his intentional disregard of this Court Order. Based upon the timing of events occurring in conjunction with the failure to comply with this Court's Order, it is evident that Mr. Frisbee's decision was strategical which might be justifiable under certain circumstances. But because it was done for the obvious purpose of protracting litigation in both federal and state court, it is improper. Mr. Frisbee, without legal justification, failed to comply with this Court's Order with the intention of expanding the litigation to his advantage. Only after November 7, 2005, when the state causes of action, which are identical to the supplemental claims, were resolved against him on the merits in state court, did he for the first time make an offer to Meritage's counsel to dismiss the state causes of action in accordance with the Court's Order. His purpose was obvious. Aggressive advocacy is not discouraged, but advocacy that intentionally and purposefully violates a court's order is not. Had Mr. Frisbee adhered to this Court's order and dismissed his state law action, his claims would have been preserved in the event they were dismissed in federal court and he had to refile them in state court. Mr. Frisbee conceded this, and failed to provide the Court with any legitimate reason for not ordering dismissal of the state court action. He had plenty of opportunities to do so at the discovery hearing, in a motion for reconsideration, or in the Petition to the Ninth Circuit. Any assumption that the litigation would be automatically stayed while an equitable appeal was pursued has no legal foundation. Moreover, this Court is hard pressed to find that Mr. Frisbee did not know the proper way to preserve his challenge to the Court's Order while he petitioned the Ninth Circuit and more significantly, after the Ninth Circuit's ruling against his client. See Footnote 7.

As previously stated, on December 14, 2005, Defendant, through Mr. Frisbee, filed a tardy Motion To Withdraw the Court's Dismissal Order. -9Document 266 Filed 01/19/2006 Page 9 of 12

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Mr. Frisbee's conduct was not made in good faith but in an effort to improperly protract this litigation. This conclusion rests in part on the overall conduct exhibited by Mr. Frisbee in the litigation throughout this action.10 D. Conclusion Mr. Frisbee acted in bad faith in failing to comply with this Court's Order after the Ninth Circuit's decision on August 10, 2005. As such, sanctions for contempt or vexatious conduct pursuant to 28 U.S.C. § 1927 might be imposed. They are rarely imposed and only for repeated and very serious conduct. Though the bad faith conduct is not sufficient to warrant sanctions pursuant to 28 U.S.C. § 1927, the level of bad faith is sufficient for contempt.

At the December 7, 2005 hearing, Plaintiff brought to the Court's attention a longstanding discovery dispute concerning the production of certain documents believed to be within the possession, custody, and control of Defendant. The Court made it clear at the March 25, 2005 hearing that Mr. Frisbee was to "certify [by the end of April 2005] that all of the documents, in accordance with the [discovery] request, have been provided, or they are not in your custody, possession, control, or your client's, and they have never existed, if they have not, or if they were stolen." See Mar. 25, 2005 Trans. at 26:23-27:5; 58:23. In fact, prior to the conclusion of the discovery hearing, Mr. Frisbee affirmatively promised that he would personally review the files at Titus, Brueckner & Berry, P.C. ("Titus"), Defendant's previous counsel, for documents responsive to Meritage's Requests for Documents, stated that "I believe that my looking at all the documents in the Titus files will provide what they want file-wise and document-wise." See id. at 52:22-24. Indeed, this statement impressed the Court that Mr. Frisbee would personally review each and every document, that he and Defendant would certify that all responsive documents had been produced or identified, per Federal Rule of Civil Procedure 26 and this Court's Order, and that a privilege log would be produced for any documents not produced. At the December 7, 2005 hearing, Plaintiff informed the Court that Mr. Frisbee and Defendant have not provided the documents requested, or the certification, or the privilege log. See Plaintiff's Letter To the Court of December 9, 2005. Apparently, Mr. Frisbee and Defendant have taken the position that the documents are not within their possession, custody, or control, and that they could shift the responsibility to Plaintiff's counsel by requiring Plaintiff's counsel to prepare the certification for their signature.. Because the issue of the failure to comply with this particular discovery order is not squarely before this Court, sanctions for a possible violation of it will not now be considered and possibly imposed. - 10 Document 266 Filed 01/19/2006 Page 10 of 12

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The Court reserves finding Mr. Frisbee in contempt at this time because apparently Mr. Frisbee has never been sanctioned with an order of contempt, nor has such a challenge been made against him until now. But, the Court has inherent power to control the litigation and to assess costs, expenses, and attorneys fees against a party where appropriate.11 Chambers v. NASCO, Inc., 501 U.S. 32, 46 (1991). The Court finds pursuant to its inherent powers that Mr. Frisbee did act in bad faith, and as such, will impose sanctions including costs, expenses, and attorney's fees reasonably incurred by Meritage in pursuing and challenging his failure to comply with the Court's Dismissal Order. Again, this Court's Dismissal Order remains in effect and continued non-compliance will warrant additional sanctions.12

Accordingly, IT IS ORDERED that Plaintiff's counsel shall submit a Bill of Costs to this Court within seven days from the date of this Order in the amount equal to the costs, expenses, and attorney's fees reasonably incurred in pursuing Defendant's compliance with this Court's Dismissal Order. IT IS FURTHER ORDERED that Defense counsel, Robert Frisbee, pay monetary sanctions in the amount determined by this Court equaling the costs, expenses, and attorney's fees reasonably incurred by Plaintiff Meritage in its pursuit of Defendant's non-compliance with this Court's Dismissal Order. Should Mr. Frisbee contest the amount of such monetary sanctions, but he cannot contest the entitlement, he must make his objections within seven

Rule 1 provides that "[t]hese rules govern the procedure in the United States district courts in all suits of a civil nature . . . . They shall be construed and administered to secure the just, speedy, and inexpensive determination of every action." The Court notes that Defendants filed a tardy Motion For Withdrawal of This Court's Dismissal Order (Doc. #234) on December 14, 2005 based on the Court's violation of the Anti-Injunction Act. The Court will rule on this motion separately. - 11 Document 266 Filed 01/19/2006 Page 11 of 12
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days from his receipt of Plaintiff's assessment of the amount, owing on or before April 19, 2006. Plaintiff's counsel shall file a reply 7 days from the receipt of Mr. Frisbee's opposition. DATED this 18th day of January, 2006.

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