Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_15-cv-00177/USCOURTS-cand-5_15-cv-00177-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Fraud

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Case No.: 5:15-cv-00177-EJD

ORDER DENYING WITHOUT PREJUDICE DEFENDANTS’ MOTION FOR SANCTIONS

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

MARBLE BRIDGE FUNDING GROUP, 

INC,

Plaintiff,

v.

LIQUID CAPITAL EXCHANGE, INC., et 

al.,

Defendants.

Case No. 5:15-cv-00177-EJD 

ORDER DENYING WITHOUT 

PREJUDICE DEFENDANTS’ MOTION 

FOR SANCTIONS

Re: Dkt. No. 62

In this action asserting claims for various forms of negligence and fraud, Plaintiff Marble 

Bridge Funding Group, Inc. (“Marble Bridge”) alleges that Defendants Liquid Capital Exchange, 

Inc. and its executive, Sol Roter (collectively, the “Exchange Defendants”), helped orchestrate a 

transaction that resulted in Marble Bridge purchasing the accounts receivable of a sham company. 

After the court dismissed all claims against Liquid Capital Exchange, Inc., Marble Bridge filed a 

First Amended Complaint (“FAC”) reasserting those claims. The Exchange Defendants now 

move for sanctions against Marble Bridge and its counsel under Federal Rule of Civil Procedure 

11 because, according to them, the allegations in the FAC are without evidentiary support. Dkt. 

No. 62. Marble Bridge opposes the motion. 

The court found this matter suitable for decision without oral argument pursuant to Civil 

Local Rule 7-1(b). Having carefully considered the pleadings filed by the parties, the court finds, 

concludes and orders as follows:

1. “Rule 11 authorizes a court to impose a sanction on any attorney, law firm, or party 

that brings a claim for an improper purpose or without support in law or evidence.” Sneller v. 

Case 5:15-cv-00177-EJD Document 93 Filed 06/08/16 Page 1 of 4
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Case No.: 5:15-cv-00177-EJD

ORDER DENYING WITHOUT PREJUDICE DEFENDANTS’ MOTION FOR SANCTIONS

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United States District Court

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City of Bainbridge Island, 606 F.3d 636, 638-39 (9th Cir. 2010). “When, as here, a ‘complaint is 

the primary focus of Rule 11 proceedings, a district court must conduct a two-prong inquiry to 

determine (1) whether the complaint is legally or factually baseless from an objective perspective, 

and (2) if the attorney has conducted a reasonable and competent inquiry before signing and filing 

it.” Holgate v. Baldwin, 425 F.3d 671, 676 (9th Cir. 2005) (quoting Christian v. Mattel, Inc., 286 

F.3d 1118, 1127 (9th Cir. 2002)).

2. In the FAC, Marble Bridge alleges that Roter prepared the fraudulent Nature’s Own 

Aging Report dated July 12, 2011 (the “Aging Report”), and that Marble Bridge relied upon the 

Aging Report to reach an agreement with Liquid Capital Exchange, Inc. to purchase its share of 

the Nature’s Own accounts receivable. In moving for sanctions, the Exchange Defendants argue 

these allegations are “demonstrably without evidentiary support” because the information 

available prior to the initiation of this action is insufficient to establish either that Roter created the 

Aging Report or that Marble Bridge relied on the Aging Report in deciding to do business with the 

Exchange Defendants. To that end, the Exchange Defendants cite to certain evidence it argues 

was available to Marble Bridge and disproves its theory of the case. This includes emails between 

Roter and representatives of Marble Bridge and Nature’s Own, which the Exchange Defendants 

believe show they did not provide Marble Bridge with the Aging Report. It also includes 

testimony from depositions conducted in connection with related cases, which has been submitted 

to support the argument that Marble Bridge could not have relied on the Aging Report when it 

decided to take on Nature’s Own as a client. 

3. The Exchange Defendants also appear to rely on the deposition testimony of 

Marsha Holloway a/k/a Annette Zimmerman, which Marble Bridge cited in its original complaint 

and which the court considered when ruling on a prior motion to dismiss. In connection with a 

determination that Marble Bridge had not properly identified each defendant’s role in the Nature’s 

Own scheme, the court observed the allegation that all of the defendants had participated in 

preparing the Aging Report appeared to be inconsistent with Holloway’s testimony that a 

defendant other than the Exchange Defendants prepared the report. 

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Case No.: 5:15-cv-00177-EJD

ORDER DENYING WITHOUT PREJUDICE DEFENDANTS’ MOTION FOR SANCTIONS

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United States District Court

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4. Given the record presented, the Exchange Defendants’ Rule 11 argument is a 

plausible one. Nevertheless, this motion for sanctions is premature at this stage of this case. 

“Courts should, and often do, defer consideration of certain kinds of sanctions motions until the 

end of trial to gain a full sense of the case and to avoid unnecessary delay of disposition of the 

case on the merits.” Lichtenstein v. Consol. Servs. Grp., Inc., 173 F.3d 17, 23 (1st Cir. 1999); 

accord Fed. R. Civ. P. 11 advisory committee’s note (1983) (“The time when sanctions are to be 

imposed rests in the discretion of the trial judge. However, it is anticipated that in the case of 

pleadings the sanctions issue under Rule 11 normally will be determined at the end of the 

litigation . . . .”); Fed. R. Civ. P. 11 advisory committee’s note (1993) (“As under the prior rule, 

the court may defer its ruling (or its decision as to the identity of the persons to be sanctioned) 

until final resolution of the case in order to avoid immediate conflicts of interest and to reduce the 

disruption created if a disclosure of attorney-client communications is needed to determine 

whether a violation occurred or to identify the person responsible for the violation.”). “This is a 

sensible practice where the thrust of the sanctions motion is that institution of the case itself was 

improper.” Lichtenstein, 173 F.3d at 23. “Although dismissal of baseless claims is theoretically 

available under Rule 11, it is better to deal with those arguments on the merits under a rule like 

Rule 56.” In re New Motor Vehicles Canadian Exp. Antitrust Litig., 244 F.R.D. 70, 74 (D. Me. 

Aug. 22, 2007). 

5. Here, the instant motion in effect asks for a finding, based on the Exchange 

Defendants’ selection of evidence and their interpretation of it, that Marble Bridge’s claims are 

frivolous and factually baseless. But the parties have not yet had the benefit of a full 

investigation; in fact, the Exchange Defendants had only answered the FAC one month before this 

motion was filed. Thus, the factual record presented is undeniably incomplete and, therefore, an 

improper basis for the imposition of Rule 11 sanctions. 

6. Moreover, assessing whether or not sanctions should be imposed now would 

collapse this motion with one for summary judgment, whereas it is the latter, rather than the 

former, that is the mechanism best suited to addressing the factual viability of Marble Bridge’s 

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Case No.: 5:15-cv-00177-EJD

ORDER DENYING WITHOUT PREJUDICE DEFENDANTS’ MOTION FOR SANCTIONS

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claims. In addition, taking up an early Rule 11 motion may encourage the use this device as a way 

to derail the normal litigation process, which it should not be. 

For these reasons, the Exchange Defendants’ motion for sanctions (Dkt. No. 62) is 

DENIED WITHOUT PREJUDICE to renewal at a later stage in these proceedings. Marble 

Bridge’s request for an award of expenses pursuant to Rule 11(c)(2) is DENIED because such 

expenses are not warranted. Although this motion was premature, the court cannot find that it was 

meritless or “a paradigmatic example of the type frowned upon by the courts.” 

IT IS SO ORDERED.

Dated: June 8, 2016

______________________________________

EDWARD J. DAVILA

United States District Judge

Case 5:15-cv-00177-EJD Document 93 Filed 06/08/16 Page 4 of 4