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Sub Zero Franchising, Inc. v. Frank Nye Consulting, LLC

United States District Court, D. Utah

April 27, 2018

SUB ZERO FRANCHISING, INC., a Utah corporation, Plaintiff/Counterclaim Defendant
v.
FRANK NYE CONSULTING, LLC, d/b/a THE ARCTIC SCOOP, a Kentucky limited liability company, FRANK NYE, an individual, and ALISON NYE, an individual, Defendants/Counterclaimants

          MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS' MOTION FOR SANCTIONS AND AWARDING ATTORNEYS' FEES, COSTS, AND EXPENSES

          Honorable Bruce S. Jenkins Judge

         On November 15, 2017, the Court heard oral argument on Defendants' Motion for Sanctions Pursuant to Fed.R.Civ.P. 11 and 28 U.S.C. § 1927 ("Motion") (DN 52). Having considered the Motion, the Response of Plaintiff Sub Zero Franchising, Inc. ("Sub Zero") (DN 53), Defendants' Reply (DN 56), and the memoranda and exhibits of the parties, as well as the arguments presented by Defendants and by counsel for Sub Zero ("Kirton McConkie") at the hearing, the Court ruled from the bench granting the Motion. The Court directed counsel for Defendants to prepare and submit a suggested form of order. The Court also directed counsel for Defendants to file a pleading as to the specific amount of attorneys' fees, costs, and expenses sought.

         On November 29, 2017, counsel for Defendants submitted both a suggested form of order and Defendants' Application for Attorneys' Fees, Costs and Expenses ("Application") (DN 61). Kirton McConkie filed oppositions to both submissions (DN 67, 69), to which Defendants submitted a reply (DN 70).

         An evidentiary hearing was held on February 6, 2018 to consider Defendants' Application. H. Dickson Burton, Robert Theuerkauf, and Daniel Redding appeared on behalf of Defendants. Richard Armstrong appeared on behalf of Kirton McConkie. The matter was continued to February 9, 2018, where H. Dickson Burton and Daniel Redding appeared on behalf of Defendants and Richard Armstrong appeared on behalf of Kirton McConkie.

         Thereafter, with leave of the court, counsel for Defendants filed supplemental declarations regarding attorneys' fees and costs incurred since Defendants originally submitted their Application (DN 74, 75, 76), to which Kirton McConkie filed an opposition (DN 78).

         Having considered Defendants' Motion, Application, and supplemental materials, the responses thereto, the evidence presented, the arguments of counsel, the relevant law, and being otherwise duly and sufficiently advised, IT IS HEREBY ORDERED:

i. Defendants' Motion is GRANTED, the Court finding that sanctions against Kirton McConkie pursuant to Fed.R.Civ.P. 11 ("Rule 11") and 28 U.S.C. § 1927 are necessary and warranted,
ii. Sanctions against Kirton McConkie shall be in the form of Defendants' reasonable attorneys' fees, costs and expenses incurred in this case, as outlined in the Application and supplemental materials, in the total amount of $361, 841.93.

         BASIS FOR SANCTIONS

         The Court finds the following conduct by Kirton McConkie did not meet the standard of a reasonable, competent attorney, and constituted violations of Rule 11:

         Kirton McConkie violated Rule 11(b)(3) when it signed the original Complaint (DN 2) asserting a cause of action against Defendants for infringement of U.S. Patent No. 8, 679, 566 ("the '566 Patent"), including in alleging without basis that Sub Zero was the owner of the right to enforce the '566 Patent by assignment. This allegation was without evidentiary support, and was not objectively reasonable. The Court further finds that such allegation was not based on a reasonable pre-suit investigation. Kirton McConkie disregarded any reasonable inquiry into the ownership or assignment of the '566 Patent, and asserted this claim for infringement without any objectively reasonable basis for the allegation that Sub Zero was the owner of the right to enforce the '566 Patent by assignment.

         Kirton McConkie violated Rule 11(b)(2) and Rule 11(b)(3) when it signed the Amended Complaint (DN 17) asserting causes of action for infringement of the '566 Patent and U.S. Patent No. 7, 455, 868 ("the '866 Patent"), including in alleging without basis that Sub Zero was the owner of the right to enforce the '566 and '868 Patents by assignment. These allegations were without evidentiary support, and, to the extent such allegations were based upon the series of purported assignments (DN 52-5, 52-7) drafted by Kirton McConkie in March 2016, such assignments were legally invalid and any allegations based on such documents were not supported by existing law. The Court further finds that such allegations were not based on a reasonable pre-suit investigation into the evidence or into the law.

         Kirton McConkie violated Rule 11(b)(3) and Rule 11(b)(1) when it signed the Complaint and Amended Complaint asserting a cause of action against Defendants for breach of contract. The allegations related to such cause of action, including that Defendants had received confidential and proprietary business information, and trade secrets, of Sub Zero, and that Defendants had used such information in the operation of their store the Arctic Scoop, were without basis and were without evidentiary support. The Court further finds that such allegations were not based on a reasonable pre-suit investigation, and that Kirton McConkie failed to conduct a reasonable investigation into any information allegedly given to Defendants by Sub Zero and/or its franchisees, as well as into any information actually used by Defendants in the operation of the Arctic Scoop.

         Kirton McConkie violated Rule 11(b)(2) and Rule 11(b)(3) when it signed the Complaint and Amended Complaint asserting a cause of action against Defendants for misappropriation of trade secrets. The allegations related to such cause of action, including that Defendants had received trade secrets of Sub Zero, and that Defendants had used such trade secrets of Sub Zero in the operation of the Arctic Scoop, were without basis and were without evidentiary support. Further, any contention that any information at issue constituted a trade secret was not warranted by existing law. The Court further finds that such allegations were not based on a reasonable pre-suit investigation, and that Kirton McConkie failed to conduct a reasonable ...


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