NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS MAR 7 2023

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

ENRIQUE LOZANO, No. 22-55273

Plaintiff-Appellant, D.C. No. 3:14-cv-00333-JAH-RBB

MARK D. POTTER,

Appellant, MEMORANDUM*

v.

JULIO YEE CABRERA; ENRIQUE WONG

VASQUEZ,

Defendants-Appellees,

WILLIAM ANTHONY ADAMS,

Appellee,

and

BEAMSPEED, LLC, an Arizona Limited Liability Company; DOES, 1-10,

Defendants.

Appeal from the United States District Court for the Southern District of California John A. Houston, District Judge, Presiding

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Argued and Submitted December 9, 2022 Pasadena, California

Before: M. SMITH, COLLINS, and LEE, Circuit Judges. Partial Concurrence and Partial Dissent by Judge COLLINS.

Plaintiff appeals the district court’s imposition of sanctions under Federal

Rule of Civil Procedure 11 and 28 U.S.C. § 1927. Because the parties are familiar

with the facts, we do not recount them here, except as necessary to provide context

to our ruling. For the reasons below, we affirm the sanctions award under Section

1927 but vacate the Rule 11 sanctions.

1. The district court did not abuse its discretion by imposing sanctions

pursuant to 28 U.S.C. § 1927. Section 1927 provides for imposition of “excess

costs, expenses, and attorneys’ fees” on counsel who “multiplies the proceedings in

any case unreasonably and vexatiously.” In conducting review of a district court’s

factual findings in support of sanctions, we “would be justified in concluding that

[the court] had abused its discretion in making [the findings] only if [they] were

clearly erroneous.” Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir. 2002)

(quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 386 (1990)) (alterations

in original). The district court’s legal findings must be affirmed unless they result

from a “materially incorrect view of the relevant law.” Id. (quoting Cooter & Gell,

496 U.S. at 402).

Plaintiff argues that the Section 1927 award should be vacated because the

2 district court did not make a finding of “subjective bad faith” on the part of

counsel. But our case law states that while “bad faith is required for sanctions

under the court’s inherent power” to sanction, “recklessness suffices” for the

imposition of sanctions under Section 1927. B.K.B. v. Maui Police Dep’t, 276

F.3d 1091, 1107 (9th Cir. 2002) (quoting Fink v. Gomez, 239 F.3d 989, 993 (9th

Cir. 2001)).

Here, the district court’s finding that Plaintiff’s counsel “ignor[ed]

Defendants’ counsel’s repeated requests for a copy of the settlement agreement and

then doubl[ed] the settlement demand,” is sufficient for purposes of imposing

sanctions under the statute, as the conduct multiplied proceedings in an

unreasonable manner. See id. (“Here defense counsel’s misconduct multiplied the

proceedings by prompting the motion for a mistrial and the subsequent imposition

of sanctions.”); cf. Christian, 286 F.3d at 1129 (finding that district court did not

abuse its discretion in awarding sanctions where counsel “sought to resurrect [a]

copyright claim by deluging the district court with supplemental filings.”). It was

inexcusable for Plaintiff to have filed this duplicative suit without first retrieving

and reviewing the prior settlement agreement, and the district court reasonably

concluded that the unjustified delay in producing the agreement adversely affected

the course of the settlement discussions and unreasonably lengthened the

proceedings.

3 Moreover, the district court’s reference to counsel’s conduct in “doubling

the settlement demand” must be understood in the context of its additional factual

findings in support of sanctions in its prior order. The court, for example, found

that Plaintiff increased the settlement amount “to punish Defendants”; and that

“Plaintiff’s emails appear[ed] to be indicative of vexatious behavior as opposed to

zealous advocacy.” 1 These findings further support the district court’s Section

1927 sanctions award.

2. The district court did abuse its discretion in imposing Rule 11 sanctions,

however. In the parties’ first appeal, we explained that Rule 11 sanctions “appl[y]

to signed writings filed with the court,” while Section 1927 sanctions are “aimed at

penalizing conduct that unreasonably and vexatiously multiplies the proceedings.”

Lozano v. Cabrera, 678 F. App’x 511, 513 (9th Cir. 2017). We further explained

that “[e]ach of these sanctions alternatives has its own particular requirements, and

it is important that the grounds be separately articulated to assure that the conduct

1 We reject Plaintiff’s contention that the district court’s order did not make clear which attorneys were the subject of the sanctions imposed under Section 1927. Viewing the order in context, it is clear that the court’s sanctions were directed at the attorneys whose conduct underlay the court’s findings— namely, Phyl Grace and Mark Potter. To the extent that Plaintiff now contends that there was sufficient evidence to support a sanctions award under Section 1927 against Grace but not against Potter, no such differential argument was raised below. In any event, the grounds we have described above extend sufficiently to both counsel that we cannot say that the district court abused its discretion in extending its order to both attorneys.

4 at issue falls within the scope of the sanctions remedy.” Id. (citing Christian, 286

F.3d at 1127). Where, as here, the complaint is the primary focus of Rule 11

proceedings, a district court must determine “whether the complaint is legally or

factually ‘baseless’ from an objective perspective.” Christian, 286 F.3d at 1131.

Here, the district court explained that it found the lawsuit to be baseless

because “the plain language of the stipulation for dismissal clearly indicat[ed] the

court retained jurisdiction over ‘all disputes between (among) the parties arising

out of the settlement agreement,’” thereby precluding the need for a new lawsuit.

Plaintiff, however, correctly notes that he raised colorable arguments in support of

filing the second lawsuit even in light of this language.

For example, he notes that at least one portion of the agreement’s release

language referred to claims that “may have arisen prior to the effective date” of the

agreement, which he argued supported his view that future claims involving new

conduct may not have been released. He also argued that, under his reading of the

settlement’s language, there were no terms in the settlement binding defendants

that Plaintiff could have enforced through a motion. Therefore, even though we

did ultimately reject Plaintiff’s arguments on the merits in the prior appeal,

Lozano, 678 F. App’x at 513, the district court did not demonstrate that the facts

surrounding the pleadings filed warranted Rule 11 sanctions.

AFFIRMED IN PART, REVERSED IN PART. Each party shall bear its

5 own costs on appeal. The Clerk is directed to forward a copy of this memorandum

to the State Bar of California, with copies to attorneys Mark Potter and Phyl

Grace. Cf. Cal. Bus. & Prof. Code § 6086.7(a)(3), (b). We note that, in its earlier

sanctions order, the district court stated that the record contained evidence of

“questionable settlement practices with opposing parties” by Plaintiff’s counsel

that “suggest[ed] conduct bordering upon, if not an actual, violation of the code of

conduct.” Although we do not rely on such alleged practices in our decision, we

nonetheless call the district court’s observation to the State Bar’s attention for

whatever consideration, if any, it may warrant.

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FILED

Lozano, et al. v. Cabrera, et al, No. 22-55273 MAR 7 2023

MOLLY C. DWYER, CLERK

COLLINS, Circuit Judge, concurring in part and dissenting in part: U.S. COURT OF APPEALS

I agree with the majority that the district court abused its discretion in

awarding sanctions under Federal Rule of Civil Procedure 11, and I therefore

concur in Part 2 of the memorandum disposition. But I would also reverse the

district court’s separate award of sanctions under 28 U.S.C. § 1927, and I therefore

dissent from Part 1 of the majority’s decision.

Section 1927 provides that “[a]ny attorney . . . 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.” 28 U.S.C. § 1927. To warrant

sanctions under this provision, the conduct must be at least reckless, see Lahiri v.

Universal Music and Video Distrib. Corp., 606 F.3d 1216, 1219 (9th Cir. 2010),

and it must cause the proceedings to be multiplied “in both an ‘unreasonable and

vexatious manner.’” In re Girardi, 611 F.3d 1027, 1060–61 (9th Cir. 2010). The

district court abused its discretion in finding that this standard was met here.

The district court’s § 1927 sanctions award was based on the premise that,

by “ignoring Defendants’ counsel’s repeated requests for a copy of the settlement

agreement and then doubling the settlement demand when they finally provided a

copy of the agreement to Defendant’s counsel, rather than dismissing the action, [Plaintiffs’ counsel] unreasonably multiplied proceedings in this matter” (emphasis

added). To the extent that this analysis rests on the view that Plaintiffs’ counsel,

after retrieving and reviewing the settlement agreement, should have immediately

“dismiss[ed] the action” outright, that is just another way of saying that the district

court thought that counsel pursued a frivolous case. That theory necessarily fails

for the same reasons that the district court’s reliance on Rule 11 fails. See Mem.

Dispo. at 5.

Given that the § 1927 sanctions cannot be sustained on the theory that

Plaintiff’s counsel multiplied the proceedings by pursuing frivolous claims, the

only remaining question is whether there is any other basis for concluding that

Plaintiffs’ counsel can be said to have multiplied the proceedings either by

(1) delaying the production of the prior settlement agreement or by (2) doubling

the settlement demand in this case. The answer is no.

As an initial matter, the delay in producing the settlement agreement from

the earlier case was fairly modest. Defendants’ counsel first requested the

settlement agreement on April 11, 2014 and Plaintiffs’ counsel finally provided a

copy on April 30—a delay of only 19 days. No court activity took place during

those 19 days; there were no impending court deadlines; and Defendants’ counsel

did not file a motion to dismiss until August of that year. Accordingly, there is no

sense in which it can be said that the delay in providing the settlement agreement

2 caused any filings or court proceedings to take place that would not have otherwise

occurred. Cf. B.K.B. v. Maui Police Dep’t, 276 F.3d 1091, 1107 (9th Cir. 2002)

(holding that counsel multiplied proceedings by engaging in bad-faith conduct that

necessitated a motion for mistrial).

That leaves only the theory that, by delaying production of the prior

settlement agreement and doubling the settlement demand for this case, Plaintiffs’

counsel unreasonably and vexatiously multiplied the proceedings by causing the

case not to settle. The majority upholds the sanctions award on this basis, see

Mem. Dispo. at 3–4, but in my view, there simply is no factual basis in this record

for concluding that Plaintiffs’ counsel’s challenged conduct derailed a settlement

that was otherwise in the offing.

The prior settlement agreement was delivered to Defendants’ counsel on

April 30, 2014, and less than one hour later the settlement demand for this case

was doubled. But by that point, the parties’ respective settlement positions had

already consistently remained far apart. Until the demand was doubled, Plaintiffs’

counsel had repeatedly demanded $6,000 and had shown no willingness to accept a

lower number. Although Defendants’ counsel had moved from offering only non-

monetary relief to offering $2,000, there is no evidence that Plaintiffs’ counsel

would ever have accepted that number. Nor is there any evidence—other than

sheer speculation—that the parties might otherwise have agreed to a number

3 between those two. In one communication, Defendants’ counsel noted that the

statutory damages under the Unruh Act were fixed at “$4,000 ($2,000 for quick

repairs),” see generally CAL. CIV. CODE §§ 52(a), 55.56(f)(2) (2014 ed.), but he

then explained that this was an “extremely rare and unique” case that warranted

“something other than formulaic treatment.” Thus, even if this communication

were generously construed as obliquely floating a compromise at $4,000, there is

no actual basis in the record for concluding that Plaintiffs’ counsel would ever

have accepted that number. Accordingly, to the extent that the district court

concluded that, but for the delay in the production of the prior settlement

agreement and the doubling of the current settlement demand, the case would

otherwise have settled, that finding rests on “unadulterated speculation” and is

therefore “clearly erroneous.” United States v. Coffey, 233 F.2d 41, 43–44 (9th

Cir. 1956).

Because none of the grounds identified by the district court can support a

conclusion that Plaintiffs’ counsel “unreasonably and vexatiously” “multiplie[d]

the proceedings,” 28 U.S.C. § 1927, I would reverse the district court’s sanctions

award under that statute as well. I therefore respectfully dissent from Part 1 of the

majority’s memorandum disposition.

4