Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_06-cv-00814/USCOURTS-casd-3_06-cv-00814-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

NORMEXSTEEL, INC., et al.,,

Plaintiff,

CASE NO. 06cv814 BTM (NLS)

ORDER GRANTING IN PART

AND DENYING IN PART

DEFENDANT’S MOTION FOR

FEES AND COSTS

vs.

CHARLES D. FLYNN, et al.,,

Defendant.

Defendant has filed a motion for costs and fees [Doc. #90]. For the reasons

discussed below, Defendant’s motion is GRANTED IN PART AND DENIED IN PART.

I. INTRODUCTION

In May 2006, Plaintiffs NorMexSteel, Inc. (“NorMex”), Joann Hunter, and Douglas

Payne filed an amended complaint alleging six causes of action against Defendant

Charles Flynn individually, as well as in his capacity as trustee of the Taurus Trust and as

an officer and director of Baiaverde Investment Corp. The complaint alleged that

Defendant and Terry Hunter, a consultant to NorMex, entered an agreement whereby

Plaintiffs Hunter and Payne pledged their NorMex stock to Defendant in exchange for his

procuring investor financing. Under the alleged agreement, Defendant was to hold the

shares in escrow until securing investors, but, according to Plaintiffs, Defendant instead

sold the shares on the open market without fulfilling his promise. Plaintiffs moved for a

preliminary injunction enjoining Defendant from selling or otherwise trading the shares

they maintained he fraudulently obtained.

After an evidentiary hearing, the Court issued its Findings of Fact and Conclusions

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 All further Rule references to are to the Federal Rules of Civil Procedure unless

otherwise noted.

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of Law Denying Plaintiffs’ Motion for Preliminary Injunction (“Order”). In denying Plaintiffs’

request, the Court found Plaintiffs’ version of the events implausible, full of

inconsistencies, and contradicted by several exhibits. Specifically, the Court held that the

evidence showed Plaintiffs Hunter and Payne were not bona fide plaintiffs because they

were not the true owners of the NorMex stock at issue. Further, the Court concluded that

Plaintiffs failed to properly state a single cause of action displaying a likelihood of success

on the merits which would warrant their request for equitable relief.

Shortly after the Court issued its order, but before Defendant filed his answer or a

motion for summary judgment, Plaintiffs voluntarily dismissed the case without prejudice

pursuant to Federal Rule of Civil Procedure 41(a)(1)(i).1

Defendant brings the current motion for costs in the amount of $5,458.54 and fees

totaling $168,875.50. 

II. DISCUSSION

A. Entitlement to Costs

Defendant asserts entitlement to costs “as of course” because he is a “prevailing

party” within the meaning of Rule 54(d)(1). The Court agrees.

The Court retains jurisdiction to consider collateral issues, including motions for

costs and fees, even after an action has been voluntarily dismissed by a plaintiff. Cooter

& Gell v. Hartmarx Corp., 496 U.S. 384, 395-96 (1990). Rule 54(d)(1) provides that

“costs . . . shall be allowed as of course to the prevailing party unless the court directs

otherwise.” Accordingly, Defendant’s recovery of costs necessarily hinges upon whether

he is a “prevailing party” by reason of Plaintiffs’ voluntary dismissal of the action without

prejudice. 

There are two divergent views as to whether a defendant becomes a “prevailing

party” when a plaintiff voluntarily dismisses his suit without prejudice pursuant to Rule

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2 See Dattner v. Conagra Foods, Inc., 458 F.3d 98, 103 (2d Cir. 2006) (stating

Defendant was not a “prevailing party” after obtaining a forum non conveniens dismissal

because Plaintiff could still sue him elsewhere and there had been no trial on merits); Sequa

v. Cooper, 245 F.3d 1036, 1037 (8th Cir. 2001) (upholding cost award under Court’s inherent

authority but disagreeing with conclusion that Plaintiff’s voluntary dismissal without prejudice

made Defendant a “prevailing party”); Szabo Food Serv., Inc. v. Canteen Corp., 823 F.2d

1073, 1076-1077 (7th Cir. 1987) (holding a voluntary dismissal without prejudice is not the

equivalent to victory on the merits and Defendant thus could not be a “prevailing party”

because he remained at risk to further litigation on the claim). Compare Cantrell v. Int’l Bhd.

Of Elec. Workers, AFL-CIO, Local 2021, 69 F.3d 456, 458 (10th Cir. 1995) (“when a party

dismisses an action with or without prejudice, the district court has discretion to award costs

to the prevailing party under Rule 54(d)”).

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41(a)(1)(i). In some circuits, a litigant cannot attain “prevailing party” status absent a

victorious adjudication on the merits or its practical equivalent – a voluntary dismissal with

prejudice.2

 However, in the Ninth Circuit, classification as a “prevailing party” is not

restricted to litigants prevailing after a trial on the merits. Corcoran v. Columbia

Broadcasting System, 121 F.2d 575, 576 (9th Cir. 1941). Instead, where a defendant is

put to the expense of opposing a preliminary matter and a plaintiff then voluntarily

dismisses his claims without amendment and without prejudice, the defendant has been

deemed a “prevailing party within the spirit and intent” of the governing statute or rule, in

this case, Rule 54(d). Id.; Kollsman v. Cohen, 996 F.2d 702, 706 (4th Cir. 1993) (citing

Corcoran in granting costs to defendant under Rule 54(d) when plaintiff voluntarily

dismissed action); Pacific Vegetable Oil Corp. v. S/S Shalom, 257 F. Supp. 944, 953 n. 5

(S.D.N.Y. 1966) (same).

Although the parties cite the potentially meritorious positions taken by other circuits

as support for their motions, Corcoran is controlling precedent in the Ninth Circuit and

Defendant is therefore a “prevailing party” within the meaning of Rule 54(d)(1). Here,

Defendant successfully opposed Plaintiffs’ request for a preliminary injunction, an issue of

central importance to the underlying matter, ultimately leading Plaintiffs to voluntarily

dismiss their suit. See Corcoran, 121 F.2d at 576; All American Distributing Co. v. Miller

Brewing Co., 736 F.2d 530, 532 (9th Cir. 1984) (finding conferment of “prevailing party”

status proper where, even without adjudication on merits, Defendant successfully

opposed a preliminary injunction request and Plaintiff then voluntarily dismissed all other

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3

 At the very least, because the Court found Plaintiffs had “not properly stated any

cause of action in the First Amended Complaint that would merit such equitable relief,” any

future action brought by Plaintiffs, without necessary corrections of fact and joinder of parties,

would be highly susceptible to dismissal on its face.

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claims). More importantly, Plaintiffs’ dismissal under the present factual context operates,

in a very practical sense, as a dismissal with prejudice. Given the Court’s conclusion that

Plaintiffs Hunter and Payne were not bona fide litigants because they were not the true

owners of the disputed NorMex securities, it appears these particular Plaintiffs could

never again bring suit against Defendant under the same facts.3 This scenario serves as

a de facto adjudication on the merits and further bolsters Defendant’s entitlement to

“prevailing party” status. Therefore, because Defendant was put to the expense of

defending on a preliminary matter and because he is a “prevailing party” within the “spirit

and intent” of the Rule, Defendant is entitled to costs “as of course.” Corcoran, 121 F.2d

at 576; Fed. R. Civ. P. 54(d)(1). Accordingly, Defendant is awarded costs in an amount

to be determined by the Clerk.

B.) Entitlement to Fees

The “American Rule” provides that each party bear the cost of its attorney’s fees

regardless of the outcome of the litigation. Alyeska Pipeline Co. v. Wilderness Soc’y, 421

U.S. 240, 247 (1975). As a general matter, prevailing litigants are only entitled to collect

attorney’s fees where there is explicit statutory authorization or a binding contractual

provision providing for such awards. Key Tronic Corp. v. United States, 511 U.S. 809,

814-15 (1994). However, even absent such a statutory grant or contractual right, the

Court retains the inherent power to shift fees in its discretion where a party acted in bad

faith, vexatiously, wantonly, or for oppressive purposes. Chambers v. NASCO, 501 U.S.

32, 45-46 (1991); accord Fink v. Gomez, 239 F.3d 989, 993-94 (9th Cir. 2001) (court’s

inherent power to sanction available upon finding that party acted in bad faith or engaged

in “conduct tantamount to bad faith,” including recklessness when combined with an

additional factor such as frivolousness, harassment, or an improper purpose). It is this

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power that Defendant asks the Court to invoke in awarding him fees. The Court declines

to do so.

The law requires a party’s conduct meet a lofty level of impropriety before it is

dubbed “bad faith” and that standard has not been met in this case. As noted in the

Court’s prior order, there is reason to suspect that all parties to the suit were involved in

some sort of international stock scheme. (Order at 5-6.) The Court denied Plaintiffs’

request for equitable relief based on their somewhat dubious claim to ownership of the

NorMex stock at issue. However, while Plaintiffs were not found to have a true ownership

interest, it is clear that Defendant’s sale of the stock was suspect as he offered no

credible evidence that he actually paid for the shares. The Court is not convinced of

Defendant’s own virtuousness such that he should be entitled to fees in contradiction of

the longstanding “American Rule” against fee shifting. As such, the Court will not invoke

its discretionary power to award fees to Defendant.

III. CONCLUSION

For the above stated reasons, the Court GRANTS Defendant’s motion for costs

and DENIES Defendant’s motion for fees. The Defendant is directed to file a bill of costs

with the Clerk in accordance with Local Rule 54.1. The Clerk shall enter judgment

accordingly.

IT IS SO ORDERED.

DATED: November 22, 2006

Hon. Barry Ted Moskowitz

United States District Judge

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