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Garth O. Green Enterprises, Inc. v. Harward

United States District Court, D. Utah

January 18, 2017

GARTH O. GREEN ENTERPRISES, INC., a Utah corporation; GARTH GREEN, an individual; and MICHAEL GREEN, an individual, Plaintiffs,
v.
RANDALL HARWARD, an individual; RICHARD HARWARD, an individual; HARWARD IRRIGATION SYSTEMS, INC., a Utah corporation; GRASS VALLEY HOLDINGS, L.P.; RICHARD N. REESE, an individual; STANDARD PLUMBING SUPPLY COMPANY, INC., a Utah corporation; DOES 1-10; and ROE CORPORATIONS 1-X; Defendants.

          MEMORANDUM DECISION AND ORDER GRANTING [57] MOTION FOR SANCTIONS AND DENYING [81] MOTION FOR SANCTIONS

          David Nuffer United States District Judge

         Defendants Richard Reese and Standard Plumbing Supply Company, Inc. (collectively “Standard Plumbing”) move for sanctions against Plaintiffs Garth O. Green Enterprises, Garth Green, Michael Green (collectively “Southwest”) and Plaintiffs' counsel in two separate motions. The first motion is based on Utah Rule of Civil Procedure 11 (“Utah Rule 11”) and was filed in state court (“57 Motion”) before this case was removed to federal court.[1] The second motion is based on Federal Rule of Civil Procedure 11 (“Federal Rule 11”) and was filed in federal court (“81 Motion”).[2] Both Utah Rule 11 and Federal Rule 11 require, among other things, that filings are warranted by existing law or the nonfrivolous extension, modification, or reversal of existing law, and are supported by factual evidence. Both rules allow a court to impose sanctions upon attorneys, law firms, or parties that have violated the rule. For the reasons below, the 57 Motion is GRANTED and the 81 Motion is DENIED.

         FACTUAL BACKGROUND

         1. Co-defendant Harward Irrigation Systems, Inc. (“Harward Irrigation”) owned and operated a business called “Sprinkler World, ” which had five different business locations throughout Utah.[3]

         2. From October 2012 to January 2013, the Greens, on behalf of Southwest, negotiated with Harward Irrigation to buy Sprinkler World including its assets, equipment, inventory, and intellectual property, and to lease its five locations.[4]

         3. On December 31, 2012, the Greens sent a “Final Offer” to Harward Irrigation stating that Southwest intended to acquire the “full rights title and interest and any trademarks to Sprinkler World, Sprinkler.com, ChristmasWorld.com, SprinklerWorld.net, your AG Business, & your Turf business.”[5]

         4. Harward Irrigation accepted the “Final Offer” on January 2, 2013.[6] However, subsequent communication between Harward and Southwest revealed different terms than those contained in the “Final Offer, ” and on the morning of January 9, the day the transaction was supposed to close, Richard Harward told the Greens that another company had made a better offer to purchase Harward Irrigation.[7] Richard Harward and Calvin Harward would not disclose who the other company was or how much the offer was for.[8] Richard Harward and Calvin Harward insisted that they would not continue with the transaction with Southwest until they had explored the other offer.[9] Based on the Harwards' representations that they would not complete the transaction with Southwest, the Greens left the meeting and returned home.[10]

         5. That same day, on January 9, 2013, Standard Plumbing entered into an Asset Purchase and Sale Agreement (“APSA”) with Harward Irrigation. Richard Reese convinced Harward Irrigation not to enter into an agreement with Southwest. Instead, Reese's company, Standard Plumbing, offered more money to purchase Harward Irrigation and completed the purchase.[11]

         6. As part of the APSA, Standard Plumbing purchased Harward Irrigation's intellectual property, including its trademarks.[12]

         7. Standard Plumbing has owned and operated Sprinkler World since January 2013.[13]

         8. On February 1, 2013, the Greens filed suit against Harward Irrigation and other defendants (but not Standard Plumbing) in state court.[14]

         9. On March 31, 2014, almost a year after the Greens filed suit, Standard Plumbing filed a declaratory judgment action in federal court against the Greens seeking a determination that Standard Plumbing owned the Sprinkler World trademarks and had not infringed on the Sprinkler World trademarks.[15]

         10. On July 14, 2014, U.S. District Judge David Sam dismissed Standard Plumbing's declaratory judgment action based on lack of federal subject matter jurisdiction. Standard Plumbing's declaratory judgment action was premised on the grounds that the Greens and Southwest held the trademark in question. But Judge Sam wrote reasoned as follows: “The parties agree that Green Enterprises never actually purchased the trademark in question before Harward backed out of any agreement it might have made.”[16] Judge Sam then explained that the Greens therefore “could not possibly have a trademark infringement claim against Standard Plumbing under federal trademark law.” He held that any such claim attempted by the Greens would be absolutely devoid of merit [and] frivolous.” Judge Sam dismissed the action based on “lack of federal subject matter jurisdiction and lack of justiciability.”[17]

         11. In September 2014, the Greens amended their complaint in state court to set forth claims against Standard Plumbing.[18]

         12. One of the claims asserted by the Greens against Standard Plumbing and Richard Reese is that they engaged in “unfair competition.”[19] The cause of action, in its entirety, provides as follows:

167. Plaintiff realleges and incorporates each and every allegation made above as if fully set forth herein.
168. As set forth above, between January 2 and 9, 2013, Richard Reese, Standard, Richard Harward, Randall Harward, Harward Irrigation and Grass Valley, engaged in unlawful, unfair, and/or fraudulent business acts and practices.
169. Pursuant to the terms of Southwest's agreement with Harward Irrigation and Grass Valley, Southwest obtained exclusive rights, among other things, to Harward Irrigation's trademarks.
170. Richard Reese, Standard, Harward Irrigation and Grass Valley have infringed or are infringing on those trademarks of Harward Irrigation that belong to Southwest.
171. Those actions have caused and/or led to a material diminution in value of intellectual property belonging to Southwest, including but not limited to the value of Southwest's trade name and reputation for business.
172. The actions of Richard Reese and Standard were further unlawful, unfair and/or fraudulent in that they were expressly intended to deprive the Greens and Southwest of the benefits of their transaction with Harward Irrigation and Grass Valley, including the trademarks of Harward Irrigation, including but not limited to profits of over $5 million over 5 years, to keep Southwest from obtaining a stronger market position in Standard's industry, and for the personal satisfaction of damaging Garth Green and Mike Green, who Richard Reese has perceived as rival businessmen over the years.
173. The actions of Richard Reese and Standard did damage the Greens and Southwest in an amount to be determined at trial, for the cost of money, time and resources, they committed to their transaction with Harward Irrigation and Grass Valley, for the damages they incurred as a result of the actions of Richard Reese and Standard, and in an amount exceeding $5 million, representing the profits Southwest reasonably expected to obtain over five (5) years, as a result of its transaction with Harward Irrigation and Grass Valley.
174. Richard Reese and Standard are further liable to the Greens and Southwest for punitive damages, emotional distress, harm to reputation that resulted from their actions inducing Harward Irrigation and Grass Valley to avoid or breach their agreement with Southwest, and attorney fees incurred in seeking to hold Richard Reese and Standard responsible for their wrongful actions.

         13. On September 25, 2014, counsel for Standard Plumbing requested that the Greens' counsel voluntarily withdraw the unfair competition claim. Standard Plumbing advised the Greens' counsel of Judge Sam's ruling and stated that a claim premised on trademark ownership or infringement would be devoid of merit and frivolous.[20]

         14. On October 2, 2014, Standard Plumbing again requested that Southwest voluntarily withdraw the unfair competition claim.[21] Southwest did not do so.

         15. On October 27, 2014, Standard Plumbing filed the 57 Motion against Southwest and Southwest's counsel, Marcus Mumford.[22]

         16. In August 2015, the state court action was removed to federal court.[23]

         17. On May 20, 2016, Elaine Monson and Steven Call entered their appearances on behalf of the Greens.[24]

         18. On May 31, 2016, counsel for Standard Plumbing requested that the Greens agree to dismiss the unfair competition claim within 21 days, and provided the Greens' counsel with a copy of the 81 Motion.[25]

         19. The unfair competition claim was not voluntarily withdrawn by the Greens, but it was dismissed with respect to Standard Plumbing.[26]

         20. Attorneys Call and Monson did not appear in the state court action.

         21. Attorneys Call and Monson did not sign, file, or submit the original complaint or any other pleadings.

         DISCUSSION

         The Standard Parties argue in their 57 Motion that the Greens' unfair competition claim is “frivolous” and “completely lacking in merit and evidentiary support in violation of Utah Rule of Civil Procedure 11.”[27]

         In the 81 Motion, the Standard Parties argue that sanctions should issue for the Greens “continu[ing] to maintain a frivolous claim of unfair competition against . . . Standard Plumbing that is completely lacking in merit and evidentiary support in violation of FRCP 11.”[28] Thus, the grounds for the 81 Motion are the same grounds that the Standard Parties used to support their 57 Motion (filing of the Amended Complaint in state court). The difference is that in the 81 Motion, the Standard Parties invoke Federal Rule of Civil Procedure 11.

         THE 81 MOTION IS DENIED

         As noted above, the plain language of Federal Rule 11 provides that all papers filed in federal court must be signed by an attorney, and the signature of that attorney “constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper[.]”[29] The signer certifies that the paper is grounded in fact and law, and is not filed for any improper purpose.[30] “If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction . . . .”[31]

         “From this language, it is apparent that the act of signing the pleading, motion, or other paper provides the certification that the action is not frivolous.”[32] “A pleading or paper is signed in violation of Rule 11 only if the signer is subject to the Federal Rules of Civil Procedure at the time of the signing.”[33]

         At the time the Amended Complaint was signed and filed in September 2014, the parties were not subject to the Federal Rules of Civil Procedure. Thus, federal ...


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