United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
ROBERT M. DOW, Jr., District Judge.
For the reasons stated below, the Court grants in part the Motions for Sanctions, filed by Defendant Weaver & Martin, LLC  and Defendants Brent Brewer, Steven Byle, Jon Montague, Christopher Wilson, and Wilson, Haglund & Paulsen, P.C. . The Court directs Defendants to submit by 10/6/2014 requests for attorneys' fees consistent with the Court's Opinion, along with appropriate supporting materials. Plaintiff and J. Kevin Benjamin may submit any objections to the fees submitted by Defendants by 10/20/2014. The Court will then determine the appropriate monetary sanction for the conduct at issue.
I. Background and the PSLRA
Following the Court's denial of Plaintiff's motion for leave to file a third amended complaint in this case, Defendants Weaver & Martin, LLC  and Brent Brewer, Steven Byle, Jon Montague, Christopher Wilson, and Wilson, Haglund & Paulsen, P.C.  (collectively, "Movants") filed motions for sanctions against Plaintiff Super Pawn and four of its attorneys, J. Kevin Benjamin, Seth Kaplan, Gordon Katz, and Robert Ouriel. The case has since settled and an order dismissing the case pursuant to Rule 41(a)(1)(ii) and stipulation of the parties was entered on April 17, 2014. By the terms of the settlement agreement, the motion for sanctions remained open for disposition by the Court.
Movants seek sanctions essentially on two grounds, arguing that (1) Plaintiff and its attorneys failed to conduct an adequate investigation into its claims before filing the various complaints in this case, and (2) after the Court granted Defendants' motion to dismiss Plaintiff's amended complaint for failure to state a claim, Plaintiff filed second and third amended complaints, which included the same allegations that the Court had already deemed time-barred. According to Movants, Plaintiff and its attorneys violated Rule 11 in both instances. And because this case involves alleged violations of Section 10(b) of the Securities and Exchange Act of 1934, Movants argue that sanctions are not only appropriate, but mandatory.
The Private Securities Litigation Reform Act ("PSLRA") dictates that "[i]n any private action arising under this chapter, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion." 15 U.S.C. § 78u-4(c)(1). "If the court makes a finding... that a party or attorney violated any requirement of Rule 11(b)... as to any complaint, responsive pleading, or dispositive motion, the court shall impose sanctions on such party or attorney in accordance with Rule 11." 15 U.S.C. § 78u-4(c)(2).
If the Court identifies Rule 11 violations, the PSLRA mandates that "the court shall adopt a presumption that the appropriate sanction... (i) for failure of any responsive pleading or dispositive motion to comply with any requirement of Rule 11(b)... is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation; and (ii) for substantial failure of any complaint to comply with the requirement of Rule 11(b)... is an award to the opposing party of the reasonable attorneys' fees and other expenses incurred in the action." 15 U.S.C. § 78u-4(c)(3)(A). That presumption may be rebutted, but "only upon proof by the party or attorney against whom sanctions are to be imposed that... (i) the award of attorneys' fees and other expenses will impose an unreasonable burden on that party or attorney and would be unjust, and the failure to make such an award would not impose a greater burden on the party in whose favor sanctions are to be imposed; or (ii) the violation of Rule 11(b)... was de minimis." 15 U.S.C. § 78u-4(c)(3)(B). But, even if the presumption is rebutted, the Court still "shall award the sanctions that the court deems appropriate pursuant to Rule 11." 15 U.S.C. § 78u-4(c)(3)(C).
Plaintiff's suit was premised on the notion that it owned 1, 000, 000 shares of common stock of American Environmental Energy, Inc. ("AEEI") as a result of a complex merger that took place in April 2008. According to Plaintiff, AEEI and others wrongfully denied it those shares following the merger, first accidentally, and then, once Defendants were made aware of the oversight, intentionally and fraudulently. On that basis, Plaintiff sued AEEI, its attorney Christopher Wilson, former CEO Brent Brewer, current CEO John Montague, chairman of the board of directors Steven Byle, various other board members, former president Randy Drew, outside corporate counsel Wilson, Haglund, & Paulson, P.C., Quicksilver Stock Transfer, LLC and its owner Alan Sinderman, stock brokerage firm TD Ameritrade, and AEEI's accounting firm Weaver & Martin LLC. Plaintiff's first amended complaint alleged that, by depriving it of shares of stock that it rightfully owned, Defendants were negligent, committed fraud, violated Section 10(b) of the Securities and Exchange Act of 1934 and the Illinois Consumer Fraud and Deceptive Business Practices Act, engaged in a conspiracy, breached a fiduciary duty to Plaintiff, and breached the duty of good faith and fair dealing. Plaintiff also accused AEEI of conversion and breach of contract.
Plaintiff, Benjamin, Kaplan, and Katz separately oppose sanctions, since each is uniquely situated with respect to Movants' allegations. Robert Ouriel did not file an opposition brief. Relevant here:
On December 15, 2011, Benjamin filed the original complaint on Plaintiff's behalf and entered his appearance in this case.
On February 3, 2012, Benjamin withdrew from the case, and Kaplan entered an appearance and filed an amended complaint ("the first amended complaint").
On June 19, 2012, the Court granted attorney Robert Ouriel's pro hac vice motion.
On July 9, 2012, Defendant Weaver & Martin filed a motion to dismiss the first amended complaint.
On July 20, 2012, Defendants American Environmental Energy; Christopher Wilson and Wilson, Haglund, and Paulsen, P.C.; and Brent Brewer, John Montague, and Steven Byle filed motions to dismiss the first amended complaint.
On August 29, 2012, Robert Ouriel filed a motion to withdraw as Plaintiff's counsel.
On September 12, 2012, Katz filed a pro hac vice motion, which the Court granted.
On October 17 and 18, 2012, Katz filed briefs in opposition to each of ...