Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-01818/USCOURTS-cand-3_04-cv-01818-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1446 Petition for Removal

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

VEDATECH, INC, VEDATECH KK, MANI

SUBRAMANIAN (an individual),

Plaintiffs,

v

ST PAUL FIRE & MARINE INSURANCE

CO, QAD INC, QAD JAPAN KK,

RANDALL WULFF (an individual), 

Defendants.

 /

No C 04-1249 VRW

04-1818 VRW

04-1403 VRW

ORDER

Mani Subramanian (Subramanian) owns Vedatech, Inc and

Vedatech KK (collectively “Vedatech”) and appears in the cases at

bar in propria persona. Subramanian and Vedatech have brought suit

against defendant QAD Inc (QAD) which moves in No 04-1249 to

dismiss Subramanian’s and Vedatech’s first amended complaint (FAC)

pursuant to FRCP 12(b)(6) and 41(e). Doc #44. Next, defendant QAD

Japan K K (QADKK) also moves in 04-1249 to dismiss the FAC pursuant

to FRCP 12(b)(5) and (b)(6). Id. Defendant Randall Wulff (Wulff)

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moves in 04-1249 the court to dismiss the FAC pursuant to FRCP

12(b)(6) and 41(e). Doc #52. Next, defendant St Paul Fire &

Marine Insurance Company (St Paul) moves in 04-1249 to dismiss the

FAC pursuant to FRCP 12(b)(6). Doc #45. Additionally, all

defendants seek sanctions pursuant to FRCP 11 or 28 USC § 1927. 

(04-1249 Docs ##86, 97, 106). Subramanian and Vedatech seek

sanctions pursuant to FRCP 11 against Wulff. (04-1249 Doc #61). 

Finally, St Paul seeks to remand Nos 04-1403 and 04-1818 to Santa

Clara superior court. (C-04-1818 Docs ##7, 19) (C-04-1403 Docs

##11, 40).

I

A

The First Action

On January 26, 1998, QAD and QADKK filed suit against

plaintiffs Vedatech Inc and Vedatech KK (collectively “Vedatech”)

and Mani Subramanian (“Subramanian”), owner of all Vedatech

entities, in the Santa Clara superior court (hereinafter, the

“first action”). The first action arose out of contractual and

tort disputes between QAD, QADKK, Vedatech and Subramanian

regarding QAD’s hiring (and firing) of Vedatech and Subramanian to

develop computer software in Japan. The substance of the

allegations in the first action need not be recited in depth. 

Suffice it to say, QAD’s and QADKK’s allegations were premised

entirely on state law.

 B

The Second Action

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In September 1999, Vedatech and Subramanian filed their

own action in the Santa Clara superior court against QAD, QADKK,

Arthur Anderson LLP, Foon Lee and John Doordan alleging fourteen

causes of action including, but not limited to, breach of contract,

fraud, constructive fraud, negligent misrepresentation, trade libel

and state unfair competition (hereinafter, the “second action”). 

Like the first action, all claims in the second action were

premised entirely on state law. In the second action, Vedatech and

Subramanian alleged that these defendants conspired to sabotage

(and did sabotage) Vedatech and Subramanian’s contractual

performance of developing software for QAD and QADKK in Japan. QAD

and QADKK filed a counterclaim in the second action essentially

duplicating their affirmative allegations in the first action. The

first and second actions were consolidated in late 2001 and

assigned to Judge Jack Komar (hereinafter, the “consolidated

action”).

C

The Third Action 

Between 1997 and 2000, St Paul issued Vedatech various

policies of comprehensive general liability insurance. 

Accordingly, on January 14, 1999, Vedatech and Subramanian tendered

to St Paul the defense of Vedatech and Subramanian in the first

action. St Paul agreed, under a reservation of rights, to provide

a defense for Vedatech and Subramanian in the first action (where

they were defendants) on May 5, 1999. Moreover, the language of

the insurance policy stated, in pertinent part, that “St Paul may,

at [its] discretion, investigate any ‘occurrence’ and settle any

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claim or suit that may result.” St Paul explicitly declined to

defend Vedatech and Subramanian regarding the cross-claims filed by

QAD and QADKK in the second action. 

After almost five years of defending Vedatech and

Subramanian in the first action, it became clear to St Paul that

the events giving rise to the first action occurred entirely in

Japan. St Paul’s insurance policy with Vedatech and Subramanian,

however, provided only domestic coverage. Unsurprisingly, a

dispute arose between Vedatech and Subramanian and St Paul

regarding liability coverage and indemnity issues under the

insurance agreement. Based upon these disputes, on February 8,

2002, St Paul filed an action for declaratory relief (hereinafter,

the “third action”) in the Santa Clara superior court against

Vedatech and Subramanian seeking a judicial determination regarding

the scope of St Paul’s duty to defend and indemnify Vedatech and

Subramanian in the entire consolidated action. Vedatech and

Subramanian then began asserting that St Paul’s duty to defend

extended to the second action as well. 

Not to be outdone, Vedatech and Subramanian filed a

counterclaim against St Paul alleging a pattern of unfair

competition in denying benefits, breach of contract and bad faith. 

Also in the counterclaim, Vedatech and Subramanian asserted, for

the first time, that St Paul had a duty to fund the prosecution of

Vedatech and Subramanian’s affirmative claims in the second action. 

On June 26, 2002, Subramanian individually removed the third action

to this court on the basis of diversity jurisdiction. On October

21, 2002, however, Judge Fogel remanded the third action pursuant

to 28 USC § 1446 because Vedatech had not joined Subramanian in the

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petition for removal. See C-02-3061, Doc #31 (Remand Order). This

brief stint in Judge Fogel’s court was only the first time, but far

from the last, that these parties would darken this court’s doors.

D

Court-Ordered Mediation of Consolidated Action

 In the meantime, Judge Komar set the consolidated action

for trial on May 3, 2004, in state court. While Subramanian

appeared pro se, Vedatech was represented at all times by counsel,

namely Christina Gonzaga (Gonzaga) of the Law Office of James S

Knopf. On January 13, 2004, Judge Komar verbally ordered all

parties to the consolidated action (including St Paul as Vedatech’s

insurer) to attend mediation before Wulff, a private mediator. C

04-1249 VRW, Doc #87, Ex F at 17:13-14 (transcript) (Judge Komar

stated: “Right now, I’m ordering you [Vedatech and Subramanian] to

go to mediation”) (emphasis added). Judge Komar chose Wulff based

upon St Paul’s representation that Wulff was a very skilled

mediator whom St Paul had previously worked with on other mediation

proceedings. On March 4, 2004, Judge Komar, in writing, ordered

all parties to attend the Wulff mediation on March 12, 2004. Id,

Ex H (Med Order). 

On March 12, 2004, the mediation was held before Wulff

with all parties attending. At the mediation, all parties were

required to sign a confidentiality agreement that provided, in

pertinent part, that “all parties agree that the mediator * * *

ha[s] no liability for any act or omission in connection with the

mediation.” Doc #54, Ex A (Conf Agreement). Subramanian signed

the confidentiality agreement on his own behalf and Gonzaga (as

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well as James Knopp) signed the agreement on behalf of Vedatech. 

Id. Although Subramanian altered the wording of portions of the

document, those changes did not alter the relevant language quoted

above. 

The mediation commenced at 9:30 am and continued until

4:00 pm when Subramanian and Vedatech’s attorneys abruptly left the

mediation. But St Paul (as Vedatech’s insurer), QAD and QADKK

elected to continue the mediation and eventually reached a

settlement of the consolidated action (the “settlement agreement”). 

Under this agreement, QAD and QADKK agreed to release and dismiss,

with prejudice, the entire first action (as well as all

counterclaims asserted by QAD and QADKK in the second action). Doc

#46, Ex A (Sett Agreement). In consideration of this dismissal, St

Paul agreed to pay QAD and QADKK the sum of $500,000. Id at 3. 

This agreement was signed and executed by QAD, QADKK and St Paul on

March 25, 2004. Id at 6-7. Moreover, the settlement agreement

specifically provided that Vedatech and Subramanian could continue

to litigate their affirmative claims against QAD and QADKK in the

second action. Id. Whether St Paul was contractually obligated to

fund such prosecution was, of course, a hotly contested issue in

the third action.

E

The Fourth Action

To say that Vedatech and Subramanian were unhappy with

the settlement agreement would be an understatement. Specifically,

they were unhappy with the settlement agreement to the extent it

apparently relieved St Paul from its duty (a duty St Paul

vigorously disputes in the third action) of having to prosecute

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Vedatech’s and Subramanian’s affirmative claims in the second

action. Vedatech and Subramanian turned their anger into action

and on March 30, 2004, they filed a lawsuit, in federal court,

alleging seven causes of action against St Paul, QAD, QADKK, Wulff

and 50 “Doe” defendants (hereinafter, the “fourth action”). This

action, based on diversity jurisdiction, was assigned to the

undersigned. C 04-1249 VRW Doc #1. Vedatech and Subramanian filed

their first amended complaint on June 15, 2004. Doc #36 (FAC). 

The FAC is currently the operative complaint in the fourth action.

The seven “causes of action” pled in the FAC include: (1)

declaratory judgment, (2) injunctive relief, (3) fraud, 

(4) constructive fraud, (5) negligent misrepresentation, (6)

insurance bad faith and (7) unfair competition. The sum and

substance of Vedatech and Subramanian’s 49-page (sometimes

unintelligible) FAC appears to be that St Paul, QAD, QADKK, Wulff

and 50 unknown defendants covertly conspired and colluded to get

Vedatech and Subramanian to “consent” to mediate the consolidated

action. Doc #36 at 19 (stating that Vedatech and Subramanian were

“tricked into ‘consenting’ to mediation before Wulff”). Once this

fraudulent plan came to fruition and the mediation took place, the

defendants further conspired in an effort to settle the

consolidated action on terms that were not in Vedatech and

Subramanian’s best interests. Id at 9 (stating that St Paul

“formulated a strategy for using the secrecy of mediation as a

cover for engaging in collusive and bad faith negotiations with QAD

* * * and Wulff”). As discussed above, the settlement agreement

was not “favorable,” according to Vedatech and Subramanian, because

it “weaken[ed] Vedatech’s [and Subramanian’s] legal representation

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for the affirmative claims” involved in the second action. Id at

19. The FAC was signed by Subramanian, on his own behalf, and

Gonzaga, as counsel for Vedatech. All defendants, save the unknown

“Doe” defendants, have separately moved for dismissal of the FAC on

various grounds. These dispositive motions are currently before

the court.

F

The Removal Rampage 

Vedatech and Subramanian’s anger did not end with the

filing of the fourth action in federal court: The settlement

agreement sent Vedatech and Subramanian on what can only be

described as a removal rampage. As described in depth below, from

March 15, 2004, to May 6, 2004, Vedatech and Subramanian filed four

petitions for removal in this court; two petitions involved the

consolidated action (the action subject to the settlement

agreement) and two petitions involved the third action.

1 

Removal #1 

On March 15, 2004, before St Paul and QAD had finalized

the settlement agreement, Vedatech and Subramanian removed the

consolidated action to this court. The removal petition was

assigned to Judge Hamilton. C-04-1035 PJH. Vedatech and

Subramanian purportedly removed the consolidated action pursuant to

28 USC § 1446(b), asserting that federal question jurisdiction had

arisen on March 10, 2004. In support of the removal, they offered

an interrogatory response from QAD and QADKK in which QAD claimed

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that it reserved all of its rights, including copyrights, in the

software that Vedatech and Subramanian had created in Japan. 

According to Vedatech and Subramanian, this interrogatory response

revealed that the basis for QAD’s state law claims in the

consolidated action was, in actuality, the Copyright Act, 17 USC 

§§ 101 et seq. Since the consolidated action, according to

Vedatech and Subramanian, would now require an interpretation of

the federal Copyright Act, the consolidated action was removable

pursuant to 28 USC § 1446(b).

2

Removal #2

 Additionally, on April 12, 2004, Vedatech and Subramanian

removed the third action to this court pursuant to 28 USC §

1446(b). This removal petition, which contained nine exhibits and

totaled hundreds of pages, was assigned to Judge Conti. C 04-1403

SC. Vedatech and Subramanian’s “removal logic” goes as follows: 

For St Paul to prevail in the third action (the insurance

declaratory relief action), St Paul would be required to “litigate

the issues in the underlying cases [i e, consolidated action],”

which, as asserted by Vedatech and Subramanian, were now removable

pursuant to 28 USC § 1446(b). Thus, according to Vedatech and

Subramanian, because the consolidated action now raised a federal

question (i e, application of the Copyright Act) and because St

Paul would necessarily have to litigate this federal question to

prevail in the third action, the third action itself was now

removable.

//

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3

Remand #1 

 On April 29, 2004, Judge Hamilton remanded the

consolidated action finding: (1) the consolidated action raised no

federal question and thus the court lacked subject matter

jurisdiction and (2) even if subject matter jurisdiction existed,

the removal was untimely. C 04-1035, Doc #43 (Remand Order). 

Vedatech and Subramanian appealed Judge Hamilton’s April 29, 2004,

remand order to the United States Court of Appeals for the Ninth

Circuit. C-04-1305, Doc #48 (Not App). On August 16, 2004, the

Ninth Circuit dismissed Vedatech and Subramanian’s appeal pursuant

to 28 USC § 1447(d). 

4

Removal #3 and Remand #2

Not content to wait for the Ninth Circuit, Vedatech and

Subramanian on May 6, 2004, filed a new petition for removal of the

consolidated action pursuant to 28 USC § 1446(b). This new

petition was 63 pages long and contained 146 paragraphs purporting

to demonstrate that Judge Hamilton had clearly erred in remanding

the consolidated action and again argued that federal jurisdiction

existed in the consolidated case pursuant to 28 USC § 1446(b). The

new removal petition was assigned to Judge Ware. Judge Hamilton,

however, intervened on May 26, 2004, and related the second removal

petition to the first petition. C-04-1806 PJH, Doc #15 (Related

Case Order). QAD and QADKK filed yet another motion to remand, Doc

#16, and Vedatech and Subramanian immediately sought to have Judge

Hamilton recused from adjudicating the motion to remand. Judge

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Hamilton denied the recusal motion and again heard oral arguments

on the motion to remand the consolidated case. On July 16, 2004,

Judge Hamilton remanded the consolidated action for the second

time. In her order, Judge Hamilton stated: “As was true when this

same action was [first] removed * * *, the present notice of

removal does not establish the existence of a federal question.” 

Doc #45 (Remand Order). Moreover, Judge Hamilton stated that

“should the removing parties remove this action yet another time,

the court will invite the QAD parties * * * to file a motion for

sanctions under [FRCP] 11.” Id. 

Vedatech and Subramanian appealed Judge Hamilton’s second

remand of the consolidated case to the Ninth Circuit. Doc #47. 

The Ninth Circuit, however, dismissed this appeal on August 16,

2004, citing 28 USC § 1447(d). Astonishingly, on August 30, 2004,

Vedatech and Subramanian filed a petition for rehearing en banc of

the Ninth Circuit’s August 16, 2004, order dismissing their appeal

of both of Judge Hamilton’s remand orders. On February 16, 2005,

the petition for rehearing en banc was denied and on February 23,

2005, Vedatech and Subramanian filed a motion to stay the Ninth

Circuit’s mandate. As of the date of this order, the motion to

stay is still pending before the Ninth Circuit. The court will not

speculate whether Vedatech and Subramanian intend to petition the

Ninth Circuit’s order to the United States Supreme Court for

certiorari.

5

Removal #4

 Falling further down the rabbit hole, on May 7, 2004,

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Vedatech and Subramanian filed a second petition for removal in the

third action, which, as described above, had already been removed

and assigned to Judge Conti for remand determination. C-04-1403

SC. What is more, Judge Conti had not yet remanded the third

action to state court; St Paul’s motion to remand was still pending

before Judge Conti. The second petition for removal of the third

action was assigned to Judge Fogel. C-04-1818 JF. The second

petition for removal of the third action was signed by Subramanian

and Gonzaga.

E

Present Status of Litigation 

In an attempt to corral this removal beast, on July 2,

2004, the undersigned related the fourth action (04-1249 VRW) and

both of Vedatech and Subramanian’s petitions for removal of the

third action (04-1403 VRW and 04-1818 VRW). The court has received

St Paul’s motion to remand, Vedatech and Subramanian’s opposition

and St Paul’s reply. C-04-1403, Docs ##11, 25, 30. Accordingly,

the issue whether to remand the third action has been fully

briefed, is currently before the court and is ripe for

adjudication.

In the meantime, Vedatech and Subramanian filed a motion

to impose sanctions pursuant to Rule 11 against Wulff in the fourth

action. Doc #61. Wulff opposes this motion. Doc #63. This

motion is also before the court.

On September 16, 2004, the court heard oral arguments

regarding (1) the three motions to dismiss the FAC, (2) St Paul’s

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motion to remand the third action and (3) Vedatech and

Subramanian’s motion for Rule 11 sanctions against Wulff. Doc #83.

At oral argument, the court invited St Paul, QAD, QADKK and Wulff

to file motions for sanctions pursuant to 28 USC § 1927 and Rule 11

against Vedatech and Subramanian. Id. All three have since filed

such motions. It is also worth noting that less than one month

after the hearing, on October 9, 2004, Gonzaga filed a motion to

withdraw as Vedatech’s attorney. (04-1249 Doc #90) (04-1403 Doc

#47) (04-1818 Doc #27). The court denied this request on October

15, 2004. (02-1249 Doc #95) (04-1403 Doc #47) (04-1818 Doc #27). 

On March 16, 2005, Gonzaga (having apparently left the Law Offices

of James Knopf) and Knopf himself filed a second motion to withdraw

as Vedatech’s attorney. (02-1249 Doc #148) (04-1403 Doc #70) (04-

1818 Doc #51). This second motion is currently pending.

Accordingly, for the sake of clarity, the court will

summarize the motions that are currently pending before this court. 

First, St Paul moves this court to remand the third action to state

court. (04-1403 Docs ##11, 40) (04-1818 Docs ##7, 19). Second,

QAD, QADKK, St Paul and Wulff separately move to dismiss the FAC in

the fourth action. (04-1249 Docs ##44, 45, 52). Third, Vedatech

and Subramanian request sanctions against Wulff pursuant to FRCP

11. (04-1249 Doc #61). Fourth, St Paul, QAD, QADKK and Wulff

request sanctions pursuant to FRCP 11 and costs and fees pursuant

to 28 USC § 1927 against Vedatech and Subramanian. (04-1249 Docs

##86, 97, 106) (St Paul 04-1403 Doc #52) (St Paul 04-1818 Doc #32). 

Gonzaga and Knopf move to withdraw as counsel of record

for Vedatech. (04-1249 Doc #148) (04-1403 Doc #70) (04-1818 Doc

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#51). Additionally, Gonzaga and Knopf have filed a motion to

strike portions of Subramanian and Vedatech’s opposition to their

second motion to withdrawal. (04-1249 Doc #154) (04-1403 Doc #74)

(04-1818 Doc #55). Subramanian and Vedatech have filed a motion

requesting additional oral argument. (04-1249 Doc #112) (04-1403

Doc #63) (04-1818 Doc #43).

Taking a deep breath, the court proceeds to attempt to

resolve these disputes.

II 

Motion to Remand

As discussed above, Vedatech and Subramanian’s first

petition for removal of the third action (a state declaratory

relief action regarding insurance contracts) is based on one single

piece of logic: “the removability of the underlying [consolidated

action] attaches mutatis mutandis to the removability of the

insurance case [third action].” C 04-1403, Doc #6 (Rem Pet) at 5. 

 Moreover, the second petition for removal states that “the

[consolidated action] [is] completely preempted by [the Copyright

Act]. This, in turn, justifies removal of this derivative action

[third action].” C 04-1818, Doc #1 (Rem Pet) at 5. 

The court expresses no opinion regarding whether Vedatech

and Subramanian’s logic is correct. Assuming arguendo that this

logic is correct, it is clear that the absence of a federal

question in the consolidated action would render the third action

unremovable. As mentioned above, this court (per Judge Hamilton)

has not once, but twice, held that the consolidated action contains

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no federal question sufficient to confer removal jurisdiction

pursuant to 28 USC § 1446(b) and has twice remanded the

consolidated action to state court. In fact, Subramanian and

Vedatech have been threatened with sanctions by Judge Hamilton

should they try again to remove the consolidated action to this

court. 

Accordingly, the question whether a federal question

exists in the consolidated action has been answered in the negative

by Judge Hamilton – twice. Under plaintiffs’ own logic, because

there is no federal question in the consolidated action, this court

must remand the third action for lack of subject matter

jurisdiction pursuant to § 1447(c). 

Moreover, even if Judge Hamilton’s remands were in error

(which clearly they were not) and even if the consolidated action

between QAD, QADKK, Vedatech and Subramanian hinged entirely on the

adjudication of the Copyright Act, this court would still lack

subject matter jurisdiction over the third action.

As discussed above, the third action is an action for

declaratory relief brought by St Paul. St Paul seeks a judicial

determination whether it has a duty to defend Vedatech in the

consolidated action if the events underlying the consolidated

action occurred in Japan. This is a matter governed completely by

California law. Under California law, “it has long been a

fundamental rule of law that an insurer has a duty to defend an

insured if [the insurer] becomes aware of, or if the third-party

lawsuit pleads, facts giving rise to the potential for coverage

under the insuring agreement.” Waller v Truck Insurance Exchange,

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Inc, 11 Cal 4th 1, 19 (1995) (citing Gray v Zurich Insurance Co, 65

Cal 2d 263, 276 (1966)). Accordingly, whether St Paul is under a

duty to defend Vedatech in the consolidated action is determined by

comparing the facts alleged in the consolidated action complaint

and the language of the insuring agreement between St Paul and

Vedatech. Even if the underlying claims were federal copyright

claims (which they are not), resolution of the third action would

hinge on whether the insuring agreement’s scope was broad enough to

encompass federal copyright claims arising from events that

occurred in Japan. This analysis in no way involves interpretation

of the Copyright Act; it is simply a matter of state contract

interpretation.

Further, although Vedatech and Subramanian are diverse

from St Paul, they cannot base their two petitions for removal on

this fact; 28 USC 1446(b) requires a defendant to file a petition

for removal within thirty days of the point when diversity

jurisdiction is established. Vedatech’s and Subramanian’s

petitions were filed more than two years after St Paul initiated

the third action in state court. 

 No federal question exists in the third action and thus

Vedatech and Subramanian’s removal pursuant to 28 USC § 1446(b) was

improper. Accordingly, St Paul’s motion to remand 04-1403 and 04-

1818 is GRANTED and the court REMANDS these cases to the Santa

Clara superior court pursuant to 28 USC § 1447(c).

St Paul requests that the court order Vedatech and

Subramanian to pay St Paul’s reasonable attorney fees and costs

incurred in these motions to remand. 28 USC § 1447(c) provides in

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relevant part: “An order remanding the case may require payment of

just costs and any actual expenses, including attorney[] fees,

incurred as a result of the removal.” As this court stated in

Moore v Kaiser Foundation Hospitals, Inc, 765 F Supp 1464, 1466 (ND

Cal 1991), aff’d 981 F2d 443 (9th Cir 1992):

As a matter of public policy, the party forced

to bring a motion to remand an improperly

removed case generally should be fully

reimbursed for its costs in remanding the case

whether the removal was in bad faith or

otherwise. The court’s award of fees in this

case is not a punitive award against

defendants; it is simply reimbursement to

plaintiffs of wholly unnecessary litigation

costs the defendants inflicted. Attorney fees

spent to remand an improperly removed case

without bad faith cost just as much as fees

spent to remand a case removed in bad faith.

The court orders the remand of this case and,

accordingly, finds that an award of reasonable attorney fees is

appropriate. To determine a reasonable attorney fee award, the

court employs the lodestar method, under which the court multiplies

the number of hours the prevailing party reasonably expended on the

litigation by a reasonable hourly rate. Yahoo!, Inc v Net Games,

Inc, 329 F Supp 2d 1179, 1182 (ND Cal 2004). “[T]o convert the

data provided by fee applicants to a ‘reasonable attorney fee,’ the

court first compares the requested number of hours to the number of

hours that ‘reasonably competent counsel’ would have billed.” Id

at 1188. 

St Paul requests 108.5 hours for services performed by

attorneys in connection with (1) the preparation and filing of both

motions to remand, (2) its reply to Vedatech’s and Subramanian’s

opposition to its motions to remand and (3) preparation for the

September 16, 2004, hearing. Doc #98, Ex A. Having considered the

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nature of the complex legal questions created by Vedatech’s and

Subramanian’s voluminous and repetitive removal petitions and

memoranda, as well as the quality of the attorneys’ work, the court

finds the claim for 108.5 hours of attorney time to be reasonable

in preparing and defending its motions to remand in these cases.

The court now turns to determining a reasonable hourly

rate. More than one methodology exists to make this determination. 

In Laffey v Northwest Airlines, Inc, 572 F Supp 354 (D DC 1983),

aff’d in part, rev’d in part on other grounds, 746 F2d 4 (DC Cir

1984) the court employed a variety of hourly billing rates to

account for the various attorneys’ different levels of experience. 

The Laffey methodology is useful when an unusually large fraction

of either senior or junior attorney time is necessary, and spent,

by counsel on behalf of a client. The Laffey methodology allows

the court to reflect in the fee award the disproportion of the time

spent by senior or junior attorneys at a rate commensurate with

such attorneys’ market hourly rate. Cf In re HPL Technologies Inc,

Securities Litigation, 2005 US Dist LEXIS 7244 (ND Cal 2005)

(Walker, J). In this case, 13.3 hours were spent by James Greenan

who claimed a billing rate of $250/hour and 96 hours by Enoch Wang

who claimed a $185/hour billing rate. St Paul requests total fees

of $20,738.75. Doc #162 at 2; Doc #98, Ex A. 

A “blended hourly rate” rather than the Laffey

methodology would appear sufficient in this case to reflect the

market rate for counsel’s services. This is because “[t]he purpose

of using prevailing market rates is to estimate the hourly rate

reasonably competent counsel would charge[,] * * * [and] not to

determine whether or not a specific attorney could command a

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specific hourly rate in the market.” The court concludes,

therefore, that “the average market rate in the local legal

community as a whole is a better approximation of the hourly rate

that would be charged by reasonably competent counsel than the

actual billing rate charged by a single attorney.” Yahoo!, 329 F

Supp 2d at 1185. 

In several of the court’s previous orders, the court has

calculated an average market rate in the local legal community as a

whole using public data from the United States Census Bureau and

Bureau of Labor Statistics (“BLS”). See, e g, Yahoo!, 329 F Supp

2d 1179; Allen v BART, 2003 WL 23333580 (N D Cal 2003); Gilliam v

Sonoma City, 2003 WL 23341211 (N D Cal 2003). In Yahoo!, the court

explained that:

The BLS provides data on the hourly wages

earned by attorneys * * *. To estimate the

hourly rates billed to clients, the court first

calculated the ratio of net receipts to gross

receipts from data compiled by the Census

Bureau. This ratio was used to approximate the

overhead costs that would be incorporated in

the hourly rates billed to clients. The court

then divided the BLS wage data (w) by the ratio

of net receipts (nr) to gross receipts (gr) to

determine an estimated average market rate (r)

* * *. 

Id at 1189. 

This methodology is represented by the following

equation: r = w / (nr/gr). Stated another way, the average market

rate r = w * (gr/nr). The most recent census data describing gross

and net receipts by law partnerships are located in “Statistical

Abstract of the United States: 2004-2005” (“2004 Statistical

Abstract”). See United States Census Bureau, Statistical Abstract

of the United States: 2004-2005, tbl 718, available at

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http://www.census.gov/statab/www/. The 2004 Statistical Abstract

provides gross and net receipts for the year 2001. For law

partnerships, gross receipts totaled $91 billion and net receipts

totaled $32 billion. This yields a ratio of net receipts to gross

receipts of 0.351. Even though these data are four years old, it

is adequate for present purposes because law firm economics should

not vary significantly over such a short period. 

The most recent data available from the BLS describing

hourly wages in the San Francisco area are located in “November

2003 Metropolitan Area Occupational Employment and Wage Estimates

San Francisco, CA PMSA,” available at

http://www.bls.gov/oes/current/oes_7360.htm#b23-0000 (“2003 BLS

Wage Estimates”). The BLS provides wage estimates for “Legal

Occupations” in the year 2003. The BLS’s estimates for lawyers are

a median hourly wage of $65.01/hr and a mean hourly wage of

$70.23/hr. Id. As in Yahoo!, the court selects the higher of the

median or mean hourly wage because it is more favorable to the

party seeking the grant of attorney fees. Id at 1191. 

Dividing the most recent mean hourly wage for lawyers,

$70.23/hr, by the most recent ratio of net to gross receipts,

0.351, yields an estimate of $200/hr (rounded down from $200.08/hr)

as the average market rate for lawyers in the San Francisco area. 

This, of course, is fairly close to the claimed hourly rate of St

Paul’s counsel. It should not be surprising that a large insurance

company would not allow itself to be overcharged for attorney

services and indeed it appears that St Paul has done just that. In

any event, the court finds that a reasonable or market value

attorney fee for the work of St Paul’s counsel is: 108.5 hours at

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$200/hr, yielding a total of $21,700. Accordingly, $20,738.75, the

amount requested by St Paul, is a reasonable attorney fees award;

indeed, it is actually almost $1,000 less than the court’s

calculation of a market value fee. Given the unitary nature of

both petitions for removal, Vedatech and Subramanian are jointly

and severally liable for the full amount of St Paul’s attorney

fees. Kona Enterprises, Inc v Estate of Bishop, 229 F3d 877, 888-

89 (9th Cir 2000); see also Pekarsky v Ariyoshi, 575 F Supp 673,

676-77 (D Hawaii 1983) (Schwarzer, J).

Finally, the court turns to St Paul’s motion for

sanctions pursuant to FRCP 11(c)(1)(A). This is an appropriate

instance in which to impose FRCP 11 sanctions, as filing a

frivolous removal petition can be grounds for imposition of Rule 11

sanctions if there is no “good faith argument” for removal. Hewitt

v City of Stanton, 798 F2d 1230, 1233 (9th Cir 1986); accord

Midlock v Apple Vacations West, Inc, 2005 US App LEXIS 6718 (7th

Cir 2005). 

The court will liberally construe the phrase “good faith

argument” and thus will not sanction Vedatech and Subramanian for

the filing of the first petition of removal (although Vedatech and

Subramanian will, as discussed above, pay St Paul’s costs on

attorney fees associated with the first petition). No amount of

leniency, however, can excuse the frivolousness of the second

petition for removal of the third action. As discussed above, when

Vedatech and Subramanian removed the third action for the second

time, Judge Conti had not adjudicated the first removal. 

Accordingly, there was no action to remove from the state court, as

this court had jurisdiction over the third action as soon as it was

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removed the first time. 28 USC § 1446(d). To make matters worse,

the second petition (which is hundreds of pages in length)

essentially duplicates the meritless arguments enumerated in the

first petition. Accordingly, to call the second petition

frivolous would be an understatement. The question is not whether

the court should impose sanctions, the question is how much. 

Rule 11 applies to pro se plaintiffs like Subramanian. 

Warren v Guelker, 29 F3d 1386, 1390 (9th Cir 1994). In determining

whether to sanction a pro se plaintiff, however, the Ninth Circuit

urges district courts to use caution. Id. But even exercising

extreme caution, the court determines sanctions are appropriate

against Subramanian. “Rule 11 is intended to * * * deter[]

[parties] who submit motions or pleadings which cannot reasonably

be supported in law or fact.” Golden Eagle Distributing Corp v

Burroughs Corp, 801 F2d 1531, 1542 (9th Cir 1986) (emphasis added). 

Subramanian has repeatedly abused the federal removal statutes and

shows no signs of stopping this practice. He has filed not one,

but four frivolous petitions for removal, causing continuous and

unnecessary congestion of this court’s docket. Moreover, this

court (per Judges Hamilton, Fogel, Conti and the undersigned) has

expended a large amount of judicial resources in adjudicating these

petitions. Clearly, the only way to deter Subramanian from

engaging in this behavior again is to invoke the monetary penalties

of Rule 11. 

The reprehensible conduct engaged in by Subramanian is

magnified when it is applied to Gonzaga, an attorney. It is clear

that Gonzaga (throughout this litigation) has simply signed off on

a myriad of frivolous motions and pleadings drafted by Subramanian

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-- including all four petitions for removal. As an officer of this

court, Gonzaga owes a duty not to file papers that are procedurally

defective and substantively indefensible. The second petition for

removal of the third action alone demonstrates that Gonzaga has

egregiously breached her duty to this court. The only method to

deter Gonzaga from engaging in this type of reckless legal

representation where she simply signs off on motions drafted by a

pro se litigant is to invoke Rule 11.

In determining the appropriate amount of sanctions, the

court is guided by the touchstone of Rule 11: Deterrence. As

between Subramanian and Gonzaga, the court concludes it is

Subramanian who needs to be deterred more from filing in the future

frivolous motions, petitions and complaints. It is clear from

Gonzaga’s motion to withdraw as counsel for Vedatech that she is

suffering the consequences of simply allowing Subramanian to run

the show in this litigation; the court doubts Gonzaga will make

this error in judgment again. Accordingly, the court SANCTIONS

Gonzaga $5,000 pursuant to Rule 11. 

Turning to Subramanian, the court concludes that although

a sanction pursuant to Rule 11 is required to deter future

frivolous filings, the large amount of attorney fees and costs

already imposed on Subramanian to compensate St Paul and the amount

that will be imposed on him to compensate Wulff, see infra Part

III(B), will certainly serve the function of deterring similar

filings in the future. Accordingly, the court SANCTIONS

Subramanian $1,000 pursuant to Rule 11. Subramanian is admonished,

however, that the court will not hesitate to impose much harsher

Rule 11 sanctions should he continue to engage in the conduct

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described in this order. If Subramanian files in this court (1)

another frivolous petition for removal, (2) any frivolous motions

in these cases, (3) a new frivolous cause of action or (4) any

other filing worthy of Rule 11 sanctions, the court will impose

sanctions at $1,000 per page of each filing. 

Pursuant to FRCP 11(c)(1)(2), Gonzaga and Subramanian’s

sanctions are to be paid to the court on or before July 25, 2005.

Finally, to the extent St Paul seeks sanctions relating

to Vedatech and Subramanian’s filing of the FAC (as opposed to the

two removal petitions), St Paul’s motion is DENIED. 

III

Motions to Dismiss

As mentioned above, in apparent anger over the settlement

reached between St Paul, QAD and QADKK regarding the consolidated

action, on March 30, 2004, Vedatech and Subramanian filed the

fourth action in this court. Doc #1. On June 15, 2004, Vedatech

and Subramanian filed the FAC. Doc #35. Named as defendants in

the FAC are: (1) St Paul, (2) QAD, (3) QADKK, (4) Wulff and (5) 50

“Doe “defendants. Id. The 49-page, 160-paragraph FAC is truly a

frightful piece of legal work. The FAC (1) makes dozens of

unintelligible factual assertions; (2) is fraught with arguments,

unsupported conclusions and case law citations; (3) contains two

portions written as if the FAC were an opposition to a motion to

dismiss and (4) even contains an internet article concerning

mediation. 

The complaint lists seven “causes of action”: (1)

declaratory judgment; (2) injunctive relief; (3) fraud and

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conspiracy to commit fraud; (4) constructive fraud and conspiracy

to commit constructive fraud; (5) negligent misrepresentation; (6)

breach of covenant of good faith and fair dealing; and (7) state

unfair competition. As a preliminary matter, the court must

dismiss one of these seven claims out of hand. Vedatech and

Subramanian’s “second cause of action” is titled “INJUNCTIVE

RELIEF.” Id at 28. Under California law, however, “[i]njunctive

relief is a remedy and not, in itself, a cause of action, and a

cause of action must exist before injunctive relief may be

granted.” Shell Oil Co, Inc v Richter, 52 Cal App 2d 164, 168

(1942)(citing Williams v Southern Pacific R R Co, 150 Cal 624

(1907)). Accordingly, Vedatech and Subramanian’s claim for

injunctive relief is dismissed pursuant to FRCP 12(b)(6).

All defendants (save the Doe defendants) move to dismiss

the FAC in its entirety under various state and federal rules. 

A

Wulff’s Motion to Dismiss

Vedatech and Subramanian allege five causes of action

against Wulff: (1) declaratory judgment; (2) fraud; (3)

constructive fraud; (4) negligent misrepresentation and (5) state

unfair competition. In sum, Vedatech and Subramanian appear to

allege that Wulff was not a neutral mediator but instead was biased

in favor of St Paul which had used his services previously. 

Because Wulff was apparently biased towards St Paul, he (1)

“tricked” Vedatech and Subramanian into signing the mediation

confidentiality agreement, (2) did not terminate the mediation when

Vedatech and Subramanian exited and (3) conspired with St Paul and

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QAD to create a settlement that harmed Vedatech and Subramanian. 

The court concludes that Wulff is immune from the claims asserted

against him in the FAC.

California law, which this court is required to apply in

diversity actions pursuant to Erie Railroad Co v Tompkins, 304 US

64 (1938), grants “quasi-judicial immunity” to persons who “fulfill

quasi-judicial functions intimately related to the judicial

process.” Howard v Drapkin, 222 Cal App 3d 843, 847 (1990). In

Howard, the parties to an underlying custody dispute stipulated

that a psychologist could act as an independent fact-finder and

make non-binding recommendations regarding allegations of physical

and sexual abuse to the judge presiding over the dispute. Id at

848. This stipulation was ultimately signed by the court and

converted into an order. Id. The child’s mother subsequently

disagreed with the psychologist’s findings and recommendations,

asserting that the psychologist (1) was abusive during the six-hour

mediation-like setting, (2) negligently prepared her findings so as

to include false statements and omit critical information and (3)

failed to disclose certain conflicts of interest and lack of

expertise in child abuse matters. Id. 

Based upon such allegedly inappropriate behavior, the

mother filed a civil lawsuit against the psychologist, pleading

causes of action for (1) fraud, (2) negligent misrepresentation,

(3) professional negligence, (4) intentional infliction of

emotional distress and (5) negligent infliction of emotional

distress. The psychologist filed a general demurrer, contending

that she enjoyed quasi-judicial immunity from the mother’s suit. 

Id at 850. The trial court agreed and sustained the demurrer and

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the California court of appeal affirmed. 

The Howard court began by stating that “under the concept

of quasi-judicial immunity, California courts have extended

absolute immunity to persons other than judges if those persons act

in a judicial or quasi-judicial capacity.” Id at 852-53. Such

persons include court commissioners, grand jurors, administrative

law hearing officers, arbitrators and prosecutors. Id at 853. 

Moreover, the court explicitly rejected the idea that only “public”

officials enjoyed quasi-judicial immunity, for “if that were so,

then arbitrators would not be protected by * * * [such] immunity.” 

Id at 854. The court further noted “the relevant policy

considerations of attracting to an overburdened judicial system the

independent and impartial services and expertise upon which that

system necessarily depends.” Id at 857. Accordingly, the court

held that all “nonjudicial persons who fulfill quasi-judicial

functions intimately related to the judicial process should be

given absolute quasi-judicial immunity for damage claims arising

from their performance of duties in connection with the judicial

process.” Id. 

“Without [this] immunity, such persons will be reluctant

to accept court appointments or provide work product for the

courts.” Id. Moreover, “in order to best protect the ability of

neutral third parties to aggressively mediate and resolve disputes,

a dismissal at the very earliest stage of the proceedings is

critical to the proper functioning and continued availability of

these services.” Id at 905 (emphasis added). 

Quite appropriately, Wulff cites Howard in support of his

motion to dismiss all claims against him in this case. It is very

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telling that Vedatech and Subramanian’s 25-page opposition to

Wulff’s motion to dismiss devotes only two pages squarely to

addressing the Howard decision (while various and unintelligible

other references to Howard are sprinkled throughout). Doc #65 at

15-17. Inexplicably, Vedatech and Subramanian devote twelve pages

of their opposition to reciting (unnecessarily) the status of

quasi-judicial immunity under federal law (i e, statutes and

Supreme Court decisions). Id at 3-14 (concluding that “[i]t is

clear that federal law is conclusively against the grant of any

such immunity to private commercial mediators such as defendant

Wulff.”). But it is state law, not federal law, that controls this

court’s analysis in diversity cases. See Erie, 304 US 64. 

Vedatech and Subramanian’s opposition makes, in essence,

two arguments why Howard’s logic does not mandate the dismissal of

all claims against Wulff. First, they argue that Howard, insofar

as it extended quasi-judicial immunity to “neutral third-party

participants in the judicial process” was “unnecessary dictum,” and

thus is not binding on this court under Erie. Doc #65 at 16. At

one point, Vedatech and Subramanian even make the assertion that

Howard’s extension of quasi-judicial immunity “is double-dicta.” 

Id at 15. Next, Vedatech and Subramanian argue that “it is clear *

* * that the California Supreme Court itself is highly unlikely to

uphold the [Howard] decision, and most certainly not for the

extension of immunity to private commercial mediators.” Id at 2. 

The court finds both arguments to be wholly without merit.

Far from being “unnecessary dictum” or “double dicta,”

Howard’s holding that “nonjudicial persons who fulfill quasijudicial function * * * should be given absolute quasi-judicial

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immunity” was the court’s ratio decidendi. In fact, the court

devoted thirteen of the opinion’s seventeen pages to the discussion

of quasi-judicial immunity. Moreover, Howard was not appealed to

the California Supreme Court and thus the assertion that Howard

will not be “upheld” by the California Supreme Court is not only

unpersuasive, but plainly wrong. Nor do Vedatech and Subramanian

offer any convincing explanation why the California Supreme Court

would disapprove of the reasoning in Howard. Indeed, Howard has

been binding California precedent for over 14 years and a search of

subsequent treatment of Howard by California courts does not reveal

a single instance of negative treatment among the 22 cases which

have cited it. 

Under Howard, Wulff is immune from all claims asserted

against him in the FAC. Accordingly, the court GRANTS Wulff’s

motion to dismiss with prejudice pursuant to 12(b)(6). Because the

court finds Wulff immune from the claims asserted in the FAC, it is

unnecessary to decide whether communications made by Wulff during

mediation are protected by Cal Civ Code § 47(b) or whether Vedatech

and Subramanian have failed to exhaust state ADR-grievance remedies

pursuant to Cal R Court 1622.

B

Rule 11 Sanctions Against Wulff

On August 12, 2004, Vedatech and Subramanian filed a

motion for sanctions pursuant to FRCP 11 against Wulff, his

attorneys Douglas Young and Jessica Nall and the entire law firm of

Farella, Braun & Martel LLP (Farella). Doc #61. 

Throughout Wulff’s motion to dismiss the FAC, Wulff

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refers to himself as a “court-appointed” mediator, thus deserving

of Howard’s immunity. Vedatech and Subramanian claim each time

this label precedes Wulff’s name, a “bad faith misrepresentation”

to this court has occurred because the Santa Clara superior court

never “appointed” Wulff as a mediator. 

Vedatech and Subramanian never specify which part of Rule

11 Wulff has allegedly violated, but since the sanctions are

directed at Wulff’s defenses, the court presumes Rule 11(b)(2) is

the relevant provision. Rule 11(b)(2) prohibits claims and

defenses that are not “warranted by existing law or by a

nonfrivolous argument for the extension or modification” of such

law. 

Far from being unwarranted by existing law, Wulff’s claim

that he was a court-appointed mediator is objectively true. Judge

Komar’s March 4, 2004, order states that all parties are to attend

mediation before Wulff. Vedatech and Subramanian, however, argue

that this order does not make Wulff court-appointed: “This order

does not in any way ‘appoint’ Mr Wulff as a mediator, is not

directed to Mr Wulff in any way or manner whatsoever, and does not

create any official relationship between the Court and Mr Wulff.” 

Doc #61 at 6. Thus, because Judge Komar’s order was directed to

the parties, rather than Wulff himself, Wulff is not “courtappointed” even though all parties were ordered to mediate before

him. Rule 11 sanctions cannot be based upon such meaningless word

play. 

Further demonstrating the baseless nature of this Rule 11

motion, Subramanian himself recognizes that Howard’s grant of

immunity applies to mediators regardless whether the mediator has

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been court-appointed. See Doc #87 (Nall Decl), Ex C (9/16/04

Transcript) at 54:25-55:2 (acknowledging that “Howard v Drapkin

does not necessitate that the mediator be a court-appointed

mediator in order to qualify under its reasoning for absolute

immunity.”)

Vedatech and Subramanian’s motion to impose Rule 11 upon

Wulff and his attorneys is DENIED.

The court may award to the person who prevails on a

motion under Rule 11 reasonable expenses, including attorney fees,

incurred in presenting or opposing the motion. See Advisory

Committee Notes to 1993 Amendments to FRCP 11. Because courts may

award fees to a party that prevails on a Rule 11 motion, “a cross

motion under Rule 11 should rarely be needed.” Id. As the target

of, and prevailing party on Vedatech’s and Subramanian’s Rule 11

motion, Wulff is entitled to an award of attorney fees. The court

will employ the same calculation method explained above in awarding

St Paul its attorney fees under § 1447(c). See supra Part III. 

Wulff requests 197.8 hours for services performed by

attorneys at Farella in (1) researching and drafting an opposition

to Vedatech’s and Subramanian’s motion for Rule 11 sanctions, (2)

preparing for and attending oral argument on the Rule 11 motion and

(3) researching and drafting Wulff’s counter-motion for sanctions. 

Doc #87 (Nall Decl) at 3-4. The court finds this to be an

unreasonable expenditure of attorney resources. 

Among the factors to be taken into account in the

reasonable hours component of the lodestar calculation is (1) the

novelty and complexity of the issues and (2) the quality of the

attorneys’ work. Morales v City of San Rafael, 96 F3d 359, 364

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(9th Cir 1996). Vedatech’s and Subramanian’s Rule 11 motion is

essentially five pages in length and the alleged grounds for

sanctions are hardly novel or complex. And while the quality of

the attorneys’ work is high, Wulff is not entitled recover for

extraordinary hours incurred by a legal dream team; he is entitled

to recover for the number of hours a reasonably competent counsel

would have billed. Additionally, the court does not doubt that the

Farella attorneys spent a large amount of time preparing and

strengthening Wulff’s defense; Wulff is a former Farella partner. 

The fact that Wulff’s attorneys worked almost 200 hours, however,

does not make this number of hours reasonable. 

Indeed 197.8 hours represents about one-tenth of a

lawyer’s annual billable hours. Put in this context, the

unreasonableness of this extraordinary number of hours is evident. 

After reviewing (1) Vedatech’s and Subramanian’s Rule 11 motion,

(2) Wulff’s opposition, (3) the time needed to prepare oral

argument and (4) Wulff’s counter-motion for sanctions, the court

concludes that it would take a reasonable lawyer about two weeks of

billable time -- or 75 hours -- effectively to oppose Vedatech’s

and Subramanian’s Rule 11 motion. Multiplying this reasonable

number of hours by the average market rate for lawyers in the San

Francisco area calculated above, the court concludes that Wulff is

entitled to $15,000 (75 hours x $200/hour). Accordingly, Vedatech

and Subramanian are jointly and severally liable to Wulff for

$15,000 incurred in opposing the unnecessary Rule 11 motion.

Additionally, Wulff moves for sanctions against Vedatech

and Subramanian pursuant to 28 USC § 1927. Doc #86. Wulff bases

his § 1927 cross-motion on Vedatech and Subramanian’s “obstinate

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refusal to acknowledge the effect of” Howard. Id at 6. 

“Any * * * person * * * 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

attorney fees reasonably incurred because of such conduct.” 28 USC

§ 1927. As this court has stated: The purpose of § 1927 is “to

deter attorneys from multiplying legal proceedings unnecessarily,

and to compensate attorneys forced to endure such proceedings.” 

Winfield v Beverly Enterprises, 1994 US Dist LEXIS 2855, *10 (ND

Cal 1994) (Walker, J). Sanctioning a party under § 1927 requires a

“finding of recklessness or bad faith.” Barber v Miller, 146 F3d

707, 711 (9th Cir 1998). “Bad faith is present when a [party]

knowingly or recklessly raises a frivolous argument.” Estate of

Blas v Winkler, 792 F2d 858, 860 (9th Cir 1986). Finally, “section

1927 sanctions may be imposed on a pro se plaintiff.” Wages v IRS,

915 F2d 1230, 1235-36 (9th Cir 1990). 

The court agrees that Vedatech and Subramanian,

recklessly and in bad faith, multiplied the legal proceedings

against Wulff by recklessly raising frivolous arguments regarding

the inapplicability of Howard. Wulff repeatedly and clearly

informed Vedatech and Subramanian of Howard’s holding regarding

quasi-judicial immunity and urged Vedatech and Subramanian to

dismiss Wulff from the current suit. Vedatech and Subramanian

refused and instead chose to make substantively indefensible

attempts to distinguish Howard. First, they argued that Wulff was

not “court appointed,” as was the psychologist in Howard. This

argument, however, has since been repudiated by Vedatech and

Subramanian. Doc #128 at 7 (admitting that “the psychologist in

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Howard v Drapkin was not ‘court-appointed’). Next, Vedatech and

Subramanian argued that this court should not follow Howard because

(1) the holding regarding quasi-judicial immunity is mere “dictum,”

and (2) the California Supreme Court is imminently preparing to

overrule Howard. These legal contentions are unwarranted by

existing law. As discussed above, there is no indication that this

fourteen-year-old decision, relied upon by numerous lower courts,

is about to be overruled by the California Supreme Court; Vedatech

and Subramanian’s conclusory assertion to the contrary is baseless

and not offered in good faith. Finally, calling Howard’s quasijudicial immunity holding “dictum” evidences a fundamental

ignorance (either intentional or reckless) of the ability to read

case law. This ignorance, however, is no defense to Wulff’s crossmotion for fees and costs. See Temple v WISAP USA, 1993 US Dist

LEXIS 18453, *19 (D Neb 1993) (“Mistaken judgment, ignorance of law

or personal belief with regard to what the law should be,” does not

negate the filing of a legally baseless document).

No doubt Vedatech and Subramanian wish Howard did not

exist or that its holding could be characterized as dictum. These

personal beliefs, however, do not constitute good faith legal

arguments. The court concludes that Wulff should never have been

forced into defending himself against Vedatech and Subramanian’s

vexatious, frivolous and legally deficient claims in the FAC; he

should have been dismissed from the outset. Vedatech and

Subramanian, however, “unreasonably and vexatiously” multiplied the

proceedings in this case against Wulff as prohibited by § 1927. 

Accordingly, the court GRANTS Wulff’s motion for § 1927

sanctions. Wulff states that his attorneys billed 290.9 hours for

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services performed and $2,300 in costs incurred in researching and

drafting his motion to dismiss the FAC. Doc #87 at 4. All

attorneys at Farella who worked on Wulff’s case, however, charged a

uniform “reduced rate” of $225/hour. Id. Accordingly, Wulff

claims he incurred $67,752.50 in attorney fees, costs and expenses

associated with defending against the FAC (290.0 hours x $225/hour

= $65,452.50 + $2,300 in costs = $67,752.50). This amount seems

too high. This is confirmed by Wulff’s request for only one-third 

of this amount, $22,584.16 or, alternatively, $70/hour ($22,584.16

- $2,300 = $20,284.16 / 290.9 = $69.73/hour). Id at 5. 

Farella does not fully explain the steep discount from

their claimed normal billing rates. This seems to confirm that

counsel’s so-called normal billing rates are the starting point for

negotiations concerning fees. In any event, in this case, the

court need not explore all the details as the amount claimed by

Wulff appears reasonable. Applying the $200/hr average market rate

(not the $225/hour rate of the Farella attorneys) to the requested

$20,284.16 for attorney fees, it appears Wulff’s request for fees

is tantamount to seeking compensation for 101.42 hours reasonably

expended in defending against the FAC ($20,284.16/$200 = 101.42). 

Having considered the tangled and complicated nature of

the legal and factual issues raised by Vedatech’s and Subramanian’s

49-page FAC, as well as the quality of the attorneys’ work product,

the court finds the claim for 101.42 hours of attorney services and

$2,300 in legal research and duplicating costs to be reasonable in

preparing and defending Wulff’s motion to dismiss the hefty FAC. 

Accordingly, the court finds the following award of attorney fees

and costs justified: 101.42 hours at $200/hour, yielding $20,284. 

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The court then adds the $2,300 incurred in duplication and legal

research, yielding the requested total of $22,584.

Accordingly, pursuant to § 1927, the court finds

Subramanian and Vedatech jointly and severally liable to Wulff for

$22,584 in attorney fees, costs and expenses incurred in defending

against the FAC.

C

St Paul’s and QAD’s Motions to Dismiss 

St Paul, QAD and QADKK all move to dismiss the FAC in its

entirety pursuant to FRCP 12(b)(6). Docs #44 (St Paul Mot), #45

(QAD/QADKK Mot). Because the legal arguments offered by St Paul

and QAD in support of their individual motions substantially

overlap and because Vedatech and Subramanian address both motions

in a single opposition memorandum, Doc #66, the court will address

these two dispositive motions in tandem. 

1

FRCP 12(b)(6) motions to dismiss essentially “test

whether a cognizable claim has been pleaded in the complaint.” 

Scheid v Fanny Farmer Candy Shops, Inc, 859 F2d 434, 436 (6th Cir

1988). Although a plaintiff is not held to a “heightened pleading

standard,” the plaintiff must provide more than mere “conclusory

allegations.” Swierkiewicz v Sorema NA, 534 US 506, 515 (2002)

(rejecting heightened pleading standards); Schmier v United States

Court of Appeals for the Ninth Circuit, 279 F3d 817, 820 (9th Cir

2002) (rejecting conclusory allegations). 

Under Rule 12(b)(6), a complaint “should not be dismissed

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for failure to state a claim unless it appears beyond doubt that

the plaintiff can prove no set of facts in support of his claim

which would entitle [her] to relief.” Hughes v Rowe, 449 US 5, 9

(1980) (citing Haines v Kerner, 404 US 519, 520 (1972)); see also

Conley, 355 US at 45-46. All material allegations in the complaint

must be taken as true and construed in the light most favorable to

plaintiff. See In re Silicon Graphics Inc Sec Lit, 183 F3d 970,

980 n10 (9th Cir 1999). But “the court [is not] required to accept

as true allegations that are merely conclusory, unwarranted

deductions of fact, or unreasonable inferences.” Sprewell v Golden

State Warriors, 266 F3d 979, 988 (9th Cir 2001) (citing Clegg v

Cult Awareness Network, 18 F3d 752, 754-55 (9th Cir 1994)).

Review of a FRCP 12(b)(6) motion to dismiss is generally

limited to the contents of the complaint, and the court may not

consider other documents outside the pleadings. Arpin v Santa

Clara Valley Transp Agency, 261 F3d 912, 925 (9th Cir 2001). The

court may, however, consider documents attached to the complaint in

connection with a motion to dismiss. Parks School of Business, Inc

v Symington, 51 F3d 1480, 1484 (9th Cir 1995). Additionally, the

court may consider “documents whose contents are alleged in a

complaint and whose authenticity no party questions, but which are

not physically attached to the pleading.” See Lapidus v Hecht, 232

F3d 679, 682 (9th Cir 2000) (internal quotation omitted). 

2

Declaratory Relief

In their first cause of action, Vedatech and Subramanian

ask this court for a declaratory judgment pursuant to 28 USC §

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2201. Regarding St Paul, Vedatech and Subramanian seek fourteen

judicial declarations. Doc #35 (FAC) at 25-27. This lengthy list

of requested declarations, in essence, requests this court to

declare that: (1) the settlement agreement with QAD is null and

void; (2) St Paul had no authority to enter into this agreement and

(3) St Paul has acted in bad faith and breached its fiduciary

duties to Vedatech and Subramanian in entering into the settlement

agreement. Regarding QAD and QADKK, Vedatech and Subramanian ask

this court to declare that: (1) QAD and QADKK cannot rely upon the

settlement agreement as a defense to Vedatech and Subramanian’s

affirmative claims in the second action and (2) any release of

claims (affirmative or counterclaims) by QAD and QADKK under the

settlement agreement are final. 

The court begins by noting the contradictory nature of

these requested declarations; Vedatech and Subramanian ask the

court to declare the settlement agreement non-binding on Vedatech

and Subramanian, but then request the court declare it binding and

final on QAD and QADKK. More importantly, however, the court notes

the duplicative nature of these declarations – the issues

underlying these declarations (e g, the validity of the agreement,

St Paul’s authority to enter into the agreement and the presence of

bad faith) are all squarely before the Santa Clara superior court

in the twice-remanded consolidated action and in the now-remanded

third action. Whether the settlement agreement is binding, void,

unconscionable or the product of bad faith are all arguments that

can be made to Judge Komar, the judge who will actually be the one

to enforce the settlement agreement in the consolidated action. 

Moreover, Vedatech and Subramanian recognize this fact in their

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opposition by stating: “Any effect of any order preventing QAD and

St Paul from proceeding with their “settlement,” will be exactly

the same as an order that may be obtained within either of the

underlying cases.” Doc #66 at 6-7. The court agrees with Vedatech

and Subramanian’s assertion. 

Accordingly, Vedatech and Subramanian are asking the

court to issue a declaratory judgment regarding certain contractual

rights they, St Paul, QAD and QADKK may or may not have in two

pending state court cases. It is clear that Vedatech and

Subramanian are wary regarding whether Judge Komar will decide to

enforce the settlement agreement. This apprehension, however, is

insufficient to justify this court exercising its discretion to

issue declaratory relief. The Ninth Circuit has made clear that

the purpose of declaratory relief in federal courts is not to

“provide insurance against [a] state court deciding the * * *

issues less favorably than a district court.” Exxon Shipping Co v

Airport Depot Diner, Inc, 120 F3d 166, 169 (9th Cir 1997). 

“Declaratory relief is not authorized so that lower federal courts

can sit in judgment over state courts, and it is not a substitute

for removal.” Id at 170 (emphasis added). See also 26 CJS

Declaratory Judgments § 120 (“The declaratory judgment procedure

should not be employed by federal courts to control state action,

or to bring into the federal courts actions which are pending in

the state courts.”). 

Under Exxon, Vedatech and Subramanian cannot avoid Judge

Komar’s adjudication of issues squarely before him in state court

by seeking declaratory relief in federal court. Accordingly, the

court refuses to exercise its discretion in issuing declaratory

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relief and GRANTS St Paul’s, QAD and QADKK’s motions to dismiss

with prejudice Vedatech and Subramanian’s first cause of action for

declaratory relief.

3

Fraud

Next, Vedatech and Subramanian assert causes of action

for fraud against St Paul, QAD and QADKK. Doc #35 (FAC) at 31-35. 

Vedatech and Subramanian contend that St Paul intentionally “failed

to disclose the nature and details of [its] prior contacts and

relationship with Wulff.” Id at 32. St Paul intentionally

withheld this information, according to Vedatech and Subramanian,

to “induce them to attend the mediation under terms that were

favorable to [St Paul, QAD and QADKK] and harmful to [Vedatech and

Subramanian].” Id at 33. Moreover, QAD and QADKK “became aware of

[St Paul’s] fraudulent schemes during the mediation,” but “with an

intent to harm Vedatech [and Subramanian] * * * QAD participated in

the ongoing fraudulent scheme * * * rel[ying] upon the idea that

the cloak of secrecy in mediation can be used to engage in

fraudulent and collusive schemes * * *.” Id at 35. Finally,

Vedatech and Subramanian assert that they indeed relied upon these

fraudulent omissions when they “consented” to attend the mediation

and thus the fraud has caused them “heavy damages.” Id at 34. 

To prevail on a claim for fraud in California, Vedatech

and Subramanian must prove by a preponderance of the evidence that: 

(1) St Paul, QAD and QADKK made a knowingly false representation;

(2) the false representation was made with the intent to deceive or

induce reliance by Vedatech and Subramanian; (3) Vedatech and

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Subramanian justifiably relied on these false representations; and

(4) they incurred damages resulting from the fraud. Smith v

Allstate Insurance Co, 160 F Supp 2d 1150, 1152 (SD Cal 2001)

(citing Wilkins v Nat’l Broadcasting Co, 71 Cal App 4th 1066

(1999)). Additionally, alleged material omissions (as alleged in

this case) may constitute a “false representation” under the first

element of fraud “when the defendant[s] had exclusive knowledge of

material facts not known to the plaintiff[s].” Wilkins, 71 Cal App

4th at 1082. 

The court cannot grant St Paul’s, QAD’s and QADKK’s

12(b)(6) motion to dismiss unless it appears beyond doubt that

Vedatech and Subramanian can prove no set of facts in support of

their fraud claim which would entitle them to relief. Hughes, 449

US at 9. 

Vedatech and Subramanian claim that St Paul, QAD and

QADKK concealed a material fact (known only to them) when they

failed to disclose that Wulff had conducted prior meditations for

St Paul. Assuming that St Paul withheld such information, under

Wilkins, such an omission could meet the first element of a fraud

claim. Next, they claim that these omissions and representations

were made to induce Vedatech and Subramanian to consent to

mediation before Wulff and thus the second element of a fraud claim

could be proven. Vedatech and Subramanian’s own submissions to the

court, however, show that they can prove no set of facts that would

meet the third and fourth elements of a fraud claim. Vedatech and

Subramanian assert that they “were unaware of the information that

was deliberately withheld from them, and relied upon these

misrepresentations * * * in consenting” to attend mediation before

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Wulff. Doc #35 at 34. No facts can support this assertion for,

quite simply, it is not true. Vedatech and Subramanian did not

“consent” to mediate before Wulff; they were ordered –- twice –- by

Judge Komar to attend the Wulff mediation. Judge Komar first

ordered Vedatech and Subramanian to attend this mediation on

February 6, 2004. Doc #84, Ex 6 (Med Order) (“It is ORDERED that

Mani Subramanian is required by the Court to appear in person at

mediation with St Paul and QAD parties in front of Randall Wulff *

* *. Failure to appear at the mediation will bring Mr Subramanian

in contempt of the Court * * *.”). What is more, it was Vedatech

and Subramanian, not any of the defendants, that supplied the court

with a copy of Judge Komar’s February 6, 2004, order. On March 4,

2004, Judge Komar again ordered the parties to attend mediation

before Wulff. Doc #46, Ex B (2d Med Order). Accordingly, Vedatech

and Subramanian cannot prove facts showing their attendance at the

mediation was based upon justifiable reliance on defendants’

alleged omissions; their attendance was based upon court order. 

Because they can offer no facts to prove this third element of

fraud, Vedatech and Subramanian have failed to state a cause of

action for fraud.

Because St Paul, QAD and QADKK cannot be held liable in

tort for fraud, it follows that none can be liable for conspiracy

to commit fraud. “Standing alone, a conspiracy does no harm and

engenders no tort liability. It must be activated by the

commission of an actual tort. A civil conspiracy, however

atrocious, does not per se give rise to a cause of action unless a

civil wrong has been committed resulting in damage.” Allied

Equipment Corp v Litton Saudi Arabia Limited, 7 Cal 4th 503, 511

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(1994) (internal quotations and citation omitted). 

For these reasons, St Paul’s, QAD’s and QADKK’s motions

to dismiss with prejudice the FAC’s claims of fraud and conspiracy

to commit fraud are GRANTED.

4

Constructive Fraud 

Next, Vedatech and St Paul assert a cause of action for

constructive fraud against St Paul. Doc #35 at 36. For the

reasons discussed above in connection with dismissal of the fraud

claims, Vedatech and Subramanian have failed to state a claim for

constructive fraud. 

“Unlike actual fraud, constructive fraud depends on the

existence of a fiduciary relationship of some kind * * *. The

elements of the cause of action for constructive fraud are: (1)

fiduciary relationship; (2) nondisclosure (breach of fiduciary

duty); (3) intent to deceive, and (4) reliance and resulting injury

(causation).” Younan v Equifax, Inc, 111 Cal App 3d 498, 516-17n14

(1980). Vedatech and Subramanian assert that St Paul owed them a

fiduciary duty as an insurer and thus element one is met (QAD and

QADKK have no fiduciary relationship with Vedatech and

Subramanian). Next, they claim that St Paul failed to disclose its

prior connections with Wulff with the intent to deceive Vedatech

and Subramanian into consenting to attend the mediation (element

two and three). The fact that Judge Komar ordered Vedatech and

Subramanian to attend the Wulff mediation, however, prevents them

from proving facts to support the last element of constructive

fraud. Again, Vedatech and Subramanian’s attendance at the

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mediation was not the product of reliance on any alleged omission

by St Paul; the attendance was court-ordered. 

For the same reasons discussed above in relation to

conspiracy to commit fraud, Vedatech and Subramanian cannot state a

cause of action for conspiracy to commit constructive fraud. See

supra Part IV(C)(3). St Paul’s motion to dismiss with prejudice

the FAC’s claim of constructive fraud and conspiracy to commit

constructive fraud is GRANTED.

5

Negligent Misrepresentation

Next, Vedatech and Subramanian assert a cause of action

against St Paul for negligent misrepresentation. Doc #35 at 39. 

The allegations underlying this claim are the same omissions used

to form the basis for the fraud and constructive fraud claims (i e,

failure to disclose St Paul’s prior connection with Wulff). In

California, however, negligent misrepresentation requires a

“positive” assertion or representation which is false;

representation by omission is not sufficient. Byrum v Brand, 219

Cal App 3d 926, 942 (1990). See also Sharp v Hawkins, 2004 US Dist

LEXIS 22928, *11 (ND Cal 2004) (stating that under California law,

“omissions or non-disclosure * * * standing alone are insufficient

to sustain a claim for negligent misrepresentation.” (citing Byrum,

219 Cal App 3d at 942)). 

Because Vedatech and Subramanian’s claim for negligent

misrepresentation is based upon non-disclosures, the court GRANTS

St Paul’s motion to dismiss with prejudice the FAC’s claims for

negligent misrepresentation. 

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6

Insurance Bad Faith 

Next, Vedatech and Subramanian assert a cause of action

against St Paul for “insurance bad faith (breach of covenant of

good faith and fair dealing).” Doc #35 at 40-42. In support of

this claim, Vedatech and Subramanian offer the court a laundry list

of alleged bad faith acts committed over a period of years by St

Paul. Id. The court, however, need not determine whether Vedatech

and Subramanian have stated a cause of action for “insurance bad

faith,” for even if such a claim has been stated, the court must

abstain from adjudicating this claim pursuant to Colorado River

Water Conservation District v United States, 424 US 800 (1976). 

As ordered above, the third action is remanded back to

state court (State Docket No 1-02-CV-805197). See supra Part III. 

In the third action, St Paul seeks a judicial declaration regarding

the scope of its duty to defend Vedatech and Subramanian in

relation to the consolidated action as well as other issues

surrounding the insurance policy. Vedatech and Subramanian filed a

counterclaim in the this action alleging “insurance bad faith.” In

fact, just prior to removing the third action to this court,

Vedatech and Subramanian filed their 112-page fourth amended crosscomplaint against St Paul in state court. See 1-02-CV-805197, Doc

#121. Moreover, in asserting the claim for insurance bad faith,

the FAC directs the court’s attention to the state court fourth

amended cross-complaint in the third action to detail fully the bad

faith allegations against St Paul. Doc #35 (FAC) at 40. Because

the court has now remanded the third action back to state court,

there are now two “insurance bad faith” claims asserted by Vedatech

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and Subramanian against St Paul; one is in state court and the

other is in federal court.

As this court has recently stated, “the Colorado River

doctrine permits [dismissal of a case] in the interests of wise

judicial administration when substantially similar claims are

pending in state court.” Le v County of Contra Costa, 1999 US Dist

LEXIS 19611, *2 (ND Cal 1999) (Walker, J) (citations omitted). 

“The threshold question is whether the state and federal suits are

substantially similar.” Id at 3 (citing Nakash v Marciano, 882 F2d

1411, 1416 (9th Cir 1989)). “If so, the factors to consider are: 

(1) the desirability of avoiding piecemeal litigation; (2) the

inconvenience of the federal forum; (3) the order in which

jurisdiction was obtained; (4) the source of the governing law and

(5) whether the state court proceedings could adequately protect

the federal plaintiff’s rights.” Id (citing Martinez v Newport

Beach City, 125 F3d 777, 785 (9th Cir 1997)). Additionally, the

court may consider whether the plaintiff in the federal action has

engaged in forum shopping. Silvaco Data Systems, Inc v Technology

Modeling Associates, Inc, 896 F Supp 973, 975 (ND Cal 1995) (citing

Nakash, 882 F2d at 1417). 

Here, the combination of these factors make a compelling

case for abstention under Colorado River. First, the state and

federal suits involve the same parties and claims and arise out of

the same conduct. California law regarding contracts and insurance

will govern both cases. Piecemeal litigation would certainly

result if the federal action were to proceed. The state court

obtained jurisdiction first; well over two years prior to the

federal court. The convenience factor is neutral. With respect to

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the rights of Vedatech and Subramanian, the court is convinced that

the state court is up to the task of deciding state law claims

arising from an alleged breach of the duty of good faith and fair

dealing. Finally, to say that Vedatech and Subramanian have

engaged in forum shopping would be an understatement; they are

desperate to obtain a federal forum to prevent the state court from

enforcing the settlement agreement, and they have employed several

inappropriate means to attain this forum. These reasons, plus an

obvious advancement of judicial economy, convince the court it

should abstain from adjudicating Vedatech and Subramanian’s claim

for insurance bad faith to avoid duplicative state proceeding.

“[D]istrict courts must stay, rather than dismiss, an

action when they determine that they should defer to the state

court proceedings under Colorado River.” Coopers & Lybrand v SunDiamond Growers of California, 912 F2d 1135, 1138 (9th Cir 1990)

(emphasis added). Accordingly, the court DENIES St Paul’s motion

to dismiss the claim for insurance bad faith. Rather, the court

STAYS adjudication of this claim pending the resolution of

Vedatech’s and Subrmanian’s fourth amended counterclaim in the

third action in the Santa Clara superior court. 

Vedatech and Subramanian shall file with the court a

status report within 30 days of disposition of the insurance bad

faith claim in state court. Failure timely to file such a report

shall be deemed a failure to prosecute and result in dismissal of

this action. To be clear, Vedatech and Subramanian are not to file

any other memoranda relating to this cause of action save the above

described status report.

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7

Unfair Competition 

Finally, Vedatech and Subramanian assert a claim for

unfair competition against St Paul, QAD and QADKK pursuant to Cal

Bus & Prof Code § 17200 et seq. Cal Bus & Prof Code § 17203

provides, in pertinent part, that:

any person who * * * has engaged * * * in unfair

competition may be enjoined * * *. The court may make

such orders or judgments * * * as may be necessary to

restore to any person in interest any money or

property, real or personal, which may have been

acquired by means of such unfair competition.

For the purposes of the current claim, the term “unfair

competition” is defined as “any unlawful, unfair or fraudulent

business act or practice.” Cal Bus & Prof Code § 17200. 

According to Vedatech and Subramanian, St Paul, QAD and

QADKK have engaged in a “pattern of behavior that is unlawful,

unfair or fraudulent,” including (as with most other claims in the

FAC): (1) St Paul’s failure to disclose its prior contacts with

Wulff, (2) fraudulently obtaining Vedatech and Subramanian’s

“consent” to attend the mediation and (3) QAD and QADKK learning of

such deception and failing to disclose it in order to “benefit to

the tune of $500,000.” Doc #35 (FAC) at 42-46. In essence,

Vedatech and Subramanian claim that St Paul and QAD engaged in

unfair competition by fraudulently obtaining Vedatech and

Subramanian’s consent to attend mediation and the resulting injury

was the settlement agreement between St Paul, QAD and QADKK which

(1) deprived Vedatech and Subramanian of their right to pursue

affirmative claims against QAD and QADKK and (2) unjustly enriched

QAD and QADKK by $500,000 which belonged to Vedatech and

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Subramanian. 

The FAC seeks restitution from QAD and QADKK in the

amount of $500,000 and requests (nebulously) the court to order St

Paul to disgorge “all benefits that are due to Vedatech under the

California Unfair Competition laws.” Vedatech and Subramanian are

careful to frame all requested relief in the form of equitable

remedies, as § 17203 does not allow damages to be recovered. Korea

Supply Co v Lockheed Martin Corp, 29 Cal 4th 1134, 1144 (2003). 

For several reasons, Vedatech and Subramanian can prove no set of

facts to support this cause of action and thus the claim must be

dismissed pursuant to FRCP 12(b)(6).

First, as the court discussed above, no fraudulent or

unfair practice on the part of St Paul, QAD or QADKK caused

Vedatech and Subramanian to attend the mediation; attendance was

court-ordered my Judge Komar –- twice. Next, assuming arguendo

that the alleged non-disclosures did trick Vedatech and Subramanian

into attending the Wulff mediation, they cannot prove that the

resulting settlement agreement (the geneses of all ensuing

“damages”) was, in the words of § 17203, “acquired by means of such

unfair competition.” The settlement agreement explicitly states

that “it is not intended to impair the prosecution by Vedatech of

any and all affirmative claims that may exists with respect to the

First or Second Action * * *.” Doc #35 (FAC), Ex A (Sett

Agreement) at 5 ¶8. Moreover, as mentioned above, the settlement

agreement was not entered into until after Vedatech and Subramanian

left the mediation. If Vedatech and Subramanian were not present

when the settlement agreement was negotiated, it follows that the

settlement agreement could not have been acquired by the means of

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St Paul, QAD and QADKK’s alleged fraudulent scheme to trick

Vedatech and Subramanian into attending the mediation.

Finally, even if St Paul, QAD and QADKK engaged in unfair

practices (which the court assumes solely for this motion) and even

if these practices tricked Vedatech and Subramanian into attending

the mediation (which clearly they did not), Vedatech and

Subramanian can prove no facts showing that they are entitled to

any equitable relief. First, Vedatech and Subramanian’s nebulous

assertion that they are entitled to require St Paul to “disgorge

all such benefits that are due” to Vedatech and Subrmanian is

conclusory and unwarranted and thus does not suffice to state a

cause of action. St Paul received nothing via the settlement

agreement that the court can order them to disgorge (if anything,

St Paul was forced to pay $500,000). Nor can Vedatech and

Subramanian prove that they are entitled to restitution of the

$500,000 which was paid to QAD and QADKK by St Paul. 

“[R]estitution [is an order] compelling a [] defendant to return

money obtained through an unfair business practice to those persons

* * * who had an ownership interest in the property * * *.” Korea

Supply Co, 29 Cal 4th at 1144-45. Vedatech and Subramanian,

however, have pled no facts showing that they have any ownership

interest in the $500,000 St Paul paid to QAD and QADKK. Rather,

the FAC simply states that St Paul paid QAD and QADKK the $500,000

“from funds that [were] held in trust for the Vedatech parties.” 

Doc #35 at 47. This legal conclusion, however, is not supported by

any facts pled in the FAC and legal conclusions, standing alone,

cannot suffice to state a cause of action. See Sprewell, 266 F3d

at 988 (“the court [is not] required to accept as true allegations

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that are merely conclusory, unwarranted deductions of fact, or

unreasonable inferences.”).

For the numerous and substantial reasons discussed above,

St Paul’s, QAD’s and QADKK’s motions to dismiss with prejudice the

FAC’s seventh cause of action for unfair competition are GRANTED. 

IV

QAD and QADKK Motion for Sanctions

Finally, QAD and QADKK move this court to sanction

Vedatech and Subramanian pursuant to FRCP 11. The court, however,

has already sanctioned Vedatech, Subramanian and Gonzaga for the

improper behavior each has demonstrated throughout this litigation

and the court does not believe any further Rule 11 sanctions are

appropriate at this time. Additionally, QAD and QADKK move for

sanctions pursuant to § 1927. The court does not believe such

sanctions are appropriate. QAD and QADKK have not had to defend

two frivolous petitions for removal (at least not in the present

action) as St Paul has had to do, nor have QAD and QADKK had to

defend a frivolous Rule 11 motion as Wulff has had to do. QAD and

QADKK were named in the FAC, they filed a motion to dismiss and the

motion is now being adjudicated. No doubt QAD and QADKK have

incurred costs and fees in defending against the FAC. But every

defendant incurs costs and fees. The costs and fees awarded to St

Paul and Wulff above did not stem from simply being named in the

FAC and having to defend themselves.

QAD and QADKK’s motion to sanction is DENIED.

//

//

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V

In sum, the court GRANTS St Paul’s motions (04-1403 Docs

##11, 40) (C-04-1818 Docs ##7, 19) to remand and REMANDS Nos 04-

1818 and 04-1403 to Santa Clara superior court. The court ORDERS

Vedatech and Subramanian to pay $20,738.75 to St Paul pursuant to

28 USC § 1447(c). Additionally, the court GRANTS St Paul’s motion

for Rule 11 sanctions (04-1249 Doc #97) (04-1403 Doc #52) (04-1818

Doc #32) and SANCTIONS Subramanian $1,000 and SANCTIONS Gonzaga

$5,000. These sanctions are payable to the court on or before July

25, 2005. 

The court GRANTS Wulff’s motion to dismiss (04-1249 Doc

#52). The court DENIES Vedatech’s and Subramanian’s motion for

Rule 11 sanctions against Wulff (04-1249 Doc #61). The court

ORDERS Vedatech and Subramanian to pay Wulff $15,000 for fees and

costs incurred in opposing the Rule 11 motion. Additionally, the

court GRANTS Wulff’s motion for sanctions pursuant to § 1927 (04-

1249 Doc #86) and ORDERS Vedatech and Subramanian to pay $22,584 to

Wulff.

QAD’s and QADKK’s motions to dismiss with prejudice all

claims asserted against them are GRANTED (04-1249 Doc #44). QAD

and QADKK’s motion for sanctions are DENIED (04-1249 Doc #106). St

Paul’s motion to dismiss the FAC is GRANTED IN PART (04-1249 Doc

#45). The court STAYS adjudication of Vedatech’s and Subramanian’s

claim for insurance bad faith against St Paul.

Hence, every action and claim (save one) to which

Vedatech is a party has been either remanded or dismissed and the

one remaining claim has been stayed pending state court resolution. 

Accordingly, the court does not find it appropriate to rule on

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Gonzaga’s and Knopf’s second motion to withdraw as counsel for

Vedatech. If they still wish to withdraw as counsel, they should

address their arguments to the Santa Clara superior court. 

Accordingly, the second motion to withdraw is DENIED as moot (04-

1249 Doc #148) (04-1403 Doc #70) (04-1818 Doc #51). Gonzaga and

Knopf’s motions to strike are DENIED as moot. (04-1249 Doc #154)

(04-1403 Doc #74) (04-1818 Doc #55). Subramanian and Vedatech’s

motion for further oral argument are DENIED as moot. (04-1249 Doc

#112) (04-1403 Doc #63) (04-1818 Doc #43). Finally, Subramanian

and Vedatech’s request to remain an e-filer in 04-1403 is DENIED as

moot.

The clerk shall administratively close the file. This

does not represent a final adjudication but an administrative

convenience for the court. Upon receipt of the state court’s order

resolving the insurance bad faith claim in the state court, the

clerk shall re-open the file upon a request of one of the parties. 

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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