Court Opinion

ID: 4296398
Source: CourtListenerOpinion
Date Created: 2018-07-20 20:00:28.66163+00
Date Added: 2024-06-11T14:39:48.074072
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        JUL 20 2018
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

WALTER DIAZ, on behalf of himself and           No.    17-15402
all others similarly situated,
                                                D.C. No. 3:15-cv-04833-CRB
                Plaintiff-Appellee,

 v.                                             MEMORANDUM*

CHARLES MESSER, Attorney for
Defendant Collecto, Inc.; et al.,

                Appellants,

 v.

COLLECTO, INC., DBA EOS CCA,

                Defendant.

                   Appeal from the United States District Court
                     for the Northern District of California
                   Charles R. Breyer, District Judge, Presiding

                       Argued and Submitted June 13, 2018
                            San Francisco, California

Before: SCHROEDER, EBEL,** and OWENS, Circuit Judges.
      Appellants Charles R. Messer, David J. Kaminski, and Stephen A.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
            The Honorable David M. Ebel, United States Circuit Judge for the
U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
Watkins—attorneys for Defendant Collecto, Inc.—challenge sanctions the district

court imposed against them under 28 U.S.C. § 1927. We affirm.

      At the outset, we note that sanctions are inappropriate where their imposition

would “chill zealous advocacy.” Ault v. Hustler Magazine, Inc., 860 F.2d 877,

884 (9th Cir. 1988) (addressing Fed. R. Civ. P. 11 sanctions), overruling on other

grounds recognized in Unelko Corp. v. Rooney, 912 F.2d 1049, 1052-53 (9th Cir.

1990). Specifically, sanctions should not be applied simply because attorneys

advance a novel argument that the Ninth Circuit has not yet considered or perhaps

even asserts arguments challenging already existing precedent. See Stone Creek,

Inc. v. Omnia Italian Design, Inc., 875 F.3d 426, 443 (9th Cir. 2017), cert. denied,

138 S. Ct. 1984 (2018). But those were not the bases for the § 1927 sanctions the

district court imposed in this case. Instead, the district court sanctioned Appellants

primarily because of the slipshod and misleading manner in which they argued in

support of their Fed. R. Civ. P. 12(c) motion by relying on clearly inapposite

authority.

      Section 1927 provides that a court “may” require “[a]ny attorney” who

“multiplies the proceedings in any case unreasonably and vexatiously . . . to satisfy

personally the excess costs, expenses, and attorneys’ fees reasonably incurred

because of such conduct.” The Ninth Circuit has held that § 1927’s language—

“unreasonably and vexatiously”—“implies a bad faith or intentional misconduct

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requirement not explicit in the statute.” Barnd v. City of Tacoma, 664 F.2d 1339,

1343 (9th Cir. 1982). Therefore, “[s]anctions pursuant to section 1927 must be

supported by a finding of subjective bad faith.” Blixseth v. Yellowstone Mountain

Club, LLC, 796 F.3d 1004, 1007 (9th Cir. 2015) (internal quotation marks

omitted). The Ninth Circuit has recognized that, among other circumstances, “bad

faith is present when an attorney knowingly or recklessly raises a frivolous

argument.” Id. (internal quotation marks and alteration omitted). An argument is

frivolous if its resolution “is obvious” or the argument is “wholly without merit.”

Nat’l Mass Media Telecomm. Sys., Inc. v. Stanley ( In re Nat’l Mass Media

Telecomm. Sys., Inc.), 152 F.3d 1178, 1181 (9th Cir. 1998) (internal quotation

marks omitted).

       In this case, the district court found that Collecto’s attorneys made a Fed. R.

Civ. P. 12(c) motion that “was both frivolous and filed recklessly.” (E.R. 159.) In

deeming Collecto’s Rule 12(c) arguments to be frivolous for purposes of § 1927,

the district court reiterated that it

       found [Collecto’s Rule 12(c)] motion to be absolutely frivolous. . . .
       the logic makes no sense at all. . . . I find it inappropriate, it’s wrong
       as a matter of law, and certainly I don’t understand it as a matter of
       strategy. . . . I do really find that it’s a frivolous motion, absolutely
       frivolous.

(E.R. 159 n.2 (quoting Tr. of 5/6/2016 (dkt. 35) at 6).) The district court did not

abuse its discretion in deeming Collecto’s Rule 12(c) arguments to be frivolous.

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See Kaass Law v. Wells Fargo Bank, N.A., 799 F.3d 1290, 1292 (9th Cir. 2015)

(establishing that our review is for an abuse of discretion).

      In the ongoing class action underlying this appeal, Plaintiff Walter Diaz

alleges that Collecto, a debt collection agency, violated California’s Invasion of

Privacy Act (“IPA”)—specifically California Penal Code §§ 632 and 632.7—by

recording its telephone calls with Diaz without first obtaining his consent.

      Section 632(a) prohibits recording a “confidential communication” without

the consent of all parties involved. A “confidential communication” includes

      any communication carried on in circumstances as may reasonably
      indicate that any party to the communication desires it to be confined
      to the parties thereto, but excludes a communication made . . . in any
      . . . circumstance in which the parties to the communication may
      reasonably expect that the communication may be overheard or
      recorded.

Id. § 632(c).

      The other statute on which Diaz relies, California Penal Code § 632.7,

similarly prohibits recording calls occurring over cell and wireless telephones, but

its prohibition is not limited to confidential communications:

      Every person who, without the consent of all parties to a
      communication, intercepts or receives and intentionally records, or
      assists in the interception or reception and intentional recordation of, a
      communication transmitted between two cellular radio telephones, a
      cellular radio telephone and a landline telephone, two cordless
      telephones, a cordless telephone and a landline telephone, or a
      cordless telephone and a cellular radio telephone, shall be punished

by a fine or imprisonment or both. Id. § 632.7(a).

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      Among its frivolous Rule 12(c) contentions, Collecto challenged Diaz’s

claim under California Penal Code § 632 by arguing that Collecto’s employees’

telephone conversations with Diaz “about his debt were not private or

confidential.” (E.R. 47.) The district court did not abuse its discretion in deeming

this argument to be contrary to California case law addressing what is a

“confidential communication” under § 632, see, e.g., Flanagan v. Flanagan, 41
P.3d 575, 579-82 (Cal. 2002). In addition, that argument contradicted Plaintiff

Diaz’s well-pled factual allegations, which must be accepted as true at the Rule

12(c) stage of litigation. See Daewoo Elecs. Am. Inc. v. Opta Corp., 875 F.3d
1241, 1246 (9th Cir. 2017), cert. denied, 2018 WL 1763555 (U.S. June 18, 2018).

      As to its challenges to Diaz’s claims implicating both California Penal Code

§§ 632 and 632.7, Collecto relied on Illinois case law to contend, frivolously, that

California’s IPA was overbroad as applied to Collecto. In asserting its

overbreadth argument, Collecto specifically eschewed any facial challenge to the

California statutes, expressly asserting only an as-applied overbreadth challenge to

the California statute. But a litigant cannot make an as-applied overbreadth

argument; an overbreadth challenge must be addressed to the facial validity of a

statute. See United States v. Szabo, 760 F.3d 997, 1003-04 (9th Cir. 2014).

Understandably, then, the Illinois cases on which Collecto based its as-applied

argument addressed instead a facial overbreadth challenge to an Illinois statute.

                                          5                                    17-15402
See People v. Clark, 6 N.E.3d 154, 157-62 (Ill. 2014); People v. Melongo, 6
N.E.3d 120, 123-27 (Ill. 2014).

      Furthermore, in support of its as-applied overbreadth argument, Collecto

asserted that because its debt collectors could take written notes of their

conversation with Diaz, the IPA’s prohibition against recording those

conversations violated Collecto’s First Amendment rights. But the Illinois cases

which Collecto used to support this argument did not hold that, because one can

take written notes of a private conversation, a state legislature cannot

constitutionally preclude recording that conversation.

      The district court, thus, did not abuse its discretion in deeming Collecto’s

Rule 12(c) arguments to be frivolous.

      Such frivolous arguments alone will not support § 1927 sanctions, however.

The attorneys making those frivolous arguments must have also acted with

subjective bad faith. See Blixseth, 796 F.3d at 1007. The Ninth Circuit has

recognized that such bad faith is present when an attorney “recklessly raises a

frivolous argument.” Id. (internal quotation marks omitted). Here, the district

court did not clearly err, see Lahiri v. Universal Music & Video Distrib. Corp., 606
F.3d 1216, 1218-19 (9th Cir. 2010), in finding that Collecto’s attorneys acted

recklessly when they asserted these frivolous Rule 12(c) arguments. The quality of

these arguments was “a gross deviation from the standard of” legal arguments one

                                           6                                  17-15402
would expect under these circumstances, Recklessly, Black’s Law Dictionary (10th

ed. 2014). That is particularly so because the case law on which Appellants based

their arguments was so clearly inapposite.

      AFFIRMED.

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