Court Opinion

ID: 4690864
Source: CourtListenerOpinion
Date Created: 2021-05-27 20:02:45.121732+00
Date Added: 2024-06-11T08:05:03.333008
License: Public Domain

NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS
                                                                              FILED
                            FOR THE NINTH CIRCUIT
                                                                              MAY 27 2021
                                                                           MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS
U.S.A. DAWGS, INC.,                              No.   19-16296

              Plaintiff-Appellant,               D.C. No.
                                                 2:17-cv-02054-JCM-NJK
CHRISTOPHER HELLMICH,

              Appellant,                         MEMORANDUM*

 v.

CROCS, INC.; KIM LAWRIE; ERIK
RUFER; KELLY GRAY,

              Defendants-Appellees.

                    Appeal from the United States District Court
                             for the District of Nevada
                     James C. Mahan, District Judge, Presiding

                            Submitted October 9, 2020**
                                Portland, Oregon

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Before: PAEZ and RAWLINSON, Circuit Judges, and ANTOON,*** District
Judge.

      U.S.A. Dawgs, Inc. and its attorney Christopher Hellmich (collectively,

Dawgs) appeal the district court’s order imposing sanctions against them under

Rule 11 of the Federal Rules of Civil Procedure (Rule 11). We review “all aspects

of a district court’s Rule 11 determination” for abuse of discretion. Cooter & Gell

v. Hartmarx Corp., 496 U.S. 384, 405 (1990); see also Retail Flooring Dealers of

Am., Inc. v. Beaulieu of Am., LLC, 339 F.3d 1146, 1150 (9th Cir. 2003). A district

court abuses its discretion when its ruling results from “an erroneous view of the

law” or “a clearly erroneous assessment of the evidence.” Cooter, 496 U.S. at 405;

see also Retail Flooring, 339 F.3d at 1150.

      1.     Rule 11 authorizes sanctions for pleadings “presented for any

improper purpose” or for claims not “warranted by existing law or by a

nonfrivolous argument for extending, modifying, or reversing existing law or for

establishing new law.” Fed. R. Civ. P. 11(b)(1), (2). The second prong covers

“frivolous” filings: “a shorthand that this court has used to denote a filing that is

both baseless and made without a reasonable and competent inquiry.” Townsend v.

Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1990), as amended Apr.

      ***
            The Honorable John Antoon II, United States District Judge for the
Middle District of Florida, sitting by designation.
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10, 1991. “District courts have broad fact-finding powers in this area to which

appellate courts must accord great deference. . . .” Id. at 1366 (citation omitted).

      Here, the district court did not abuse its discretion in finding Dawgs’s claims

frivolous. Dawgs alleged that an employee of Crocs, Inc. (Crocs) illegally

accessed Dawgs’s confidential information regarding an upcoming sale of Dawgs’s

shoes on the online store, Zulily, where Crocs was scheduled to sell competing

shoes. Before Dawgs filed suit, however, Zulily explained to Dawgs, several

times, that such information was readily available to all vendors through the “New

Tomorrow” feature of the Zulily website and through other means. Zulily also

explained to Dawgs how it could confirm those facts. Thus, a reasonable inquiry

would have revealed that Crocs did not access Dawgs’s sales information through

illegal means. It was unreasonable for Dawgs to assume otherwise in light of

Zulily’s verifiable explanation and absent any evidence of duplicity.

      The district court also acted within its discretion in finding that Dawgs

brought this lawsuit for an improper purpose: to gain leverage over another

lawsuit between Dawgs and Crocs in Colorado. In this case, Dawgs sent a letter to

Crocs, threatening a “dramatic increase in litigation costs” if the parties did not

reach a global settlement. Dawgs dismissed this action when no settlement was

reached. Importantly, “[a]lthough the ‘improper purpose’ and ‘frivolousness’

                                           3
inquiries are separate and distinct, they will often overlap since evidence bearing

on frivolousness or non-frivolousness will often be highly probative of purpose.”

Townsend, 929 F.2d at 1362.1 The frivolousness of Dawgs’s claims in this case

thus underscores the lawsuit’s improper purpose.

      2.     We reject Dawgs’s argument that Crocs did not mitigate damages by

providing exculpatory evidence–namely, proof that they did not illegally access

Dawgs’s information. Zulily presented Dawgs with the means by which to verify

Zulily’s explanation that Crocs did not engage in wrongdoing. The onus was not

on Crocs to provide exculpatory evidence or suffer a lawsuit; rather, it was on

Dawgs to conduct a competent inquiry into whether there was an objectionably

reasonable basis for its suspicions. See, e.g., Townsend, 929 F.2d at 1366.

      3.     We disagree with Dawgs’s contention that the district court calculated

the sanctions amount–$37,500 against Dawgs and $12,500 against Hellmich–by

improperly multiplying the amount another court sanctioned Dawgs in an unrelated

case by four. The district court did no such thing. Although the court mentioned

that the award was four times the previous award, that remark was merely an

observation. The district court actually arrived at the sanctions amount by

      1
             In light of this ruling, we need not address whether sanctions were
appropriate under 28 U.S.C. § 1927 or the district court’s inherent power.
                                          4
significantly reducing Crocs’s requested award of $224,466.80 in attorneys’ fees

and $77,388.70 in costs.

      AFFIRMED.

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