Opinion ID: 593665
Heading Depth: 2
Heading Rank: 1

Heading: Sanctions for Filing the Complaint.

Text: 4 The Burnses contend that the district court abused its discretion in imposing a Rule 11 sanction for the filing of their complaint in this matter. 5 We review an order imposing Rule 11 sanctions for abuse of discretion. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990). A district court abuses its discretion if it does not apply the correct law, rests its decision on a clearly erroneous finding of a material fact, or applies the correct legal standard in an irrational manner to arrive at a conclusion that no reasonable judge would reach. Hunt v. National Broadcasting Co., Inc., 872 F.2d 289, 292 (9th Cir.1989). 6 The Burnses filed this action in federal district court claiming that the Driggses had violated 12 U.S.C. § 1464(q). The Burnses also alleged that the Driggses were liable for negligent misrepresentation and consumer fraud under Arizona law. The complaint expressly states that these claims were pendent state claims. 7 Section 1464(q) provides in pertinent part: 8 A savings association may not in any manner extend credit, lease, or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement ... that the customer shall obtain additional credit, property, or service to such savings association.... 9 12 U.S.C. § 1464(q). 10 The plain language of the statute limits its application to a regulation of the conduct of a savings association. Rule 11 requires that a pleading be filed in good faith. A good faith belief in the merit of a legal argument is an objective condition which a competent attorney attains only after a 'reasonable inquiry.'  Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir.1986). 11 The district court did not abuse its discretion in concluding that a reasonably competent attorney would have recognized that, by its terms, Section 1464(q) does not apply to a natural person. 12 The Burnses' counsel did not argue at the hearing on the motion to dismiss that the complaint's allegation that the Driggses were liable under Section 1464(q) was made in good faith. In their briefs before this court, the Burnses do not contend that they or their counsel believed in good faith that Section 1464(q) authorizes the filing of a private cause of action against a natural person. Instead, they argue that the district court had jurisdiction over their fraud and negligent misrepresentation claims under federal common law. 13 At the time the First Amended Complaint was filed, however, the Burnses alleged that these causes of action were pendent state claims. Because the district court did not abuse its discretion in concluding that the Burnses did not file this action in federal court in good faith, the sanction of $12,901 imposed for the legal expenses incurred in presenting the motion to dismiss must be upheld. 14