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1 Shayna Balch Santiago (SBN 304802) ELECTRONICALLY FILED
E-Mail: ssantiago@fisherphillips.com Superior Court of California
2 FISHER & PHILLIPS LLP County of Santa Barbara
3200 N. Central Avenue, Suite 1550 Darrel E. Parker, Executive Officer
3 Phoenix, Arizona 85012-2487 11/19/2021 12:39 PM
Telephone: (602) 281-3400 By: Sarah Sisto, Deputy
4 Facsimile: (602) 281-3401
5 Kathryn M. Evans (SBN 323190)
E-Mail: kmevans@fisherphillips.com
6 FISHER & PHILLIPS LLP
4747 Executive Drive, Suite 1000
7 San Diego, California 92121
Telephone: (858) 597-9600
8 Facsimile: (858) 597-9601
9 Attorneys for Defendants,
UCOMMG, LLC; Unified Communications Group, Inc.;
10 Kenneth W. Newbatt; Bianca Newbatt; Mitchell C.
Lipkin; Michael J. Bellas; Jimmie Garrett Baker, Jr.;
11 WesTele Utility Solutions, LLC; and Cynthia Baker
12 SUPERIOR COURT OF THE STATE OF CALIFORNIA
13 FOR THE COUNTY OF SANTA BARBARA - ANACAPA DIVISION
14 BUTLER AMERICA, LLC, a Delaware CASE NO.: 20CV03877
limited liability company, [Unlimited Jurisdiction]
15
Plaintiff, Assigned for all purposes to the
16 Honorable Donna D. Geck, Dept. 4
v.
17 MEMORANDUM OF POINTS AND
UCOMMG, LLC, a Nevada limited liability AUTHORITIES IN SUPPORT OF
18 company; UNIFIED COMMUNICATIONS DEFENDANTS’ MOTION FOR
GROUP, INC., a dissolved Washington SANCTIONS PURSUANT TO CODE OF
19 corporation; KENNETH W. NEWBATT, an CIVIL PROCEDURE SECTIONS 128.7
individual; BIANCA NEWBATT, an
20 individual; MITCHELL C. LIPKIN, an [Filed concurrently with Notice of Motion;
individual; MICHAEL J. BELLAS, an Declaration of Shayna Balch Santiago; and
21 individual; JIMMIE GARRETT BAKER, JR., [Proposed] Order]
an individual; WESTELE UTILITY
22 SOLUTIONS, LLC, a California limited DATE: February 25, 2022
liability company; and DOES 1 through 50, TIME: 10:00 a.m.
23 inclusive, DEPT: 4
24 Defendants. Complaint Filed: November 20, 2020
Removal Filed: January 4, 2021
25 FAC Filed: April 16, 2021
Remanded to State Court: August 3, 2021
26 Trial Date: Not Set
27
28
MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS
FP 41378025.2
1 TABLE OF CONTENTS
2 I. INTRODUCTION ............................................................................................................1
3 II. STATEMENT OF FACTS ...............................................................................................2
A. Procedural Background .........................................................................................2
4
B. Defendants Were Forced to Incur Fees by Filing Multiple Motions to
5 Dismiss ..................................................................................................................2
C. Plaintiff Refuses to Comply With Its Obligation under Code of Civil
6 Procedure section 2019.210 to Identify the Trade Secrets at Issue ......................4
7 III. PLAINTIFF AND ITS COUNSEL WERE GIVEN MONTHS OF TIME TO
WITHDRAW THIS BASELESS ACTION, BUT IT REMAINS PENDING .................5
8 IV. LEGAL STANDARD FOR A SECTION 128.7 MOTION FOR SANCTIONS .............6
9 V. SECTION 128.7 GRANTS THE COURT AUTHORITY TO IMPOSE
SANCTIONS ON PLAINTIFF AND ITS COUNSEL ....................................................7
10 A. Plaintiff Filed Its First Amended Complaint Despite Knowing No
Personal Jurisdiction Exists Over the Nonresident Defendants ............................7
11
B. The FAC Contains False or Misleading Statements .............................................8
12 C. Plaintiff and Its Attorneys Knew When They Filed the Complaint That It
Lacked Any Factual Support for Plaintiff’s Claims Against Defendants ...........10
13
VI. CONCLUSION ...............................................................................................................11
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1
TABLE OF CONTENTS
FP 41378025.2
1 TABLE OF AUTHORITIES
2 Page(s)
3 Federal Cases
4
California Arch. Building Prods., Inc. v. Franciscan Ceramics, Inc.
5 (9th Cir. 1987) 818 F.2d 1466 .............................................................................................. 10
6 Hamer v. Career College Association
(9th Cir. 1992) 979 F.2d 758 .................................................................................................. 8
7
Heller v. Cepia L.L.C.
8 (9th Cir. 2014) 560 Fed.Appx. 678 ......................................................................................... 9
9 Hendrix v. Naphtal
10 (9th Cir. 1992) 971 F.2d 398 .................................................................................................. 3
11 Holgate v. Baldwin
(9th Cir. 2005) 425 F.3d 671, 676.) ...................................................................................... 10
12
Jones v. Campbell University,
13 322 F.Supp.3d 106 (D.D.C. 2018) .......................................................................................... 8
14 Kellman v. Whole Foods Mkt., Inc.
15 (N.D. Cal. 2018) 313 F.Supp.3d 1031 .................................................................................... 3
16 King v. Idaho Funeral Services, Ass’n
(9th Cir. 1988) 862 F.2d 744 ................................................................................................ 10
17
Lipkin v. Hunt,
18 573 F.Supp.2d 836 (S.D.N.Y. 2008)....................................................................................... 8
19 Love v. The Mail on Sunday,
No. CV05-7798ABCPJWX, 2006 WL 4046169 (C.D. Cal. July 13, 2006) .......................... 8
20
21 Manuel v. Lucenti
(N.D. Ill. Nov. 10, 2004). Case No. 04-C-2531.................................................................... 10
22
Perogeux, LLC v. Winkler
23 (N.D. Cal. Mar. 15, 2017) Case No. 17-cv-00572 NC ........................................................... 3
24 Pipe Trades Council of N. Cal., U.A. Local 159 v. Underground Contractors
Ass’n of N. Cal.
25 (9th Cir. 1987) 835 F.2d 1275 ................................................................................................ 8
26
Truesdell v. S. Cal. Permanente Med. Grp.
27 (9th Cir. 2002) 293 F.3d 1146 ............................................................................................ 8, 9
28
1
TABLE OF AUTHORITIES
FP 41378025.2
1 Warren v. Guelker
(9th Cir. 1994) 29 F.3d 1386 .................................................................................................. 8
2
State Cases
3
4 Bockrath v. Aldrich Chemical Co.
(1999) 21 Cal.4th 71 ............................................................................................................... 7
5
Bucur v. Ahmad
6 (2016) 244 Cal.App.4th 175 ............................................................................................... 6, 7
7 Guillemin v. Stein
(2002) 104 Cal.App.4th 156 ............................................................................................... 6, 7
8
Musaelian v. Adams
9
(2009) 45 Cal.4th 512 ............................................................................................................. 6
10
Olmstead v. Arthur J. Gallagher & Co.
11 (2004) 32 Cal.4th 804 ............................................................................................................. 6
12 Peake v. Underwood
(2014) 227 Cal.App.4th 428 ................................................................................................... 5
13
Perlan v. Therapeutics, Inc. v. Superior Court
14
(2009) 178 Cal.App.4th 1333 ................................................................................................. 5
15
Sabek, Inc. v. Engelhard Corp.
16 (1998) 65 Cal.App.4th 992 ..................................................................................................... 3
17 ViaView, Inc. v. Retzlaff
(2016) 1 Cal.5th 198 ............................................................................................................... 3
18
State Statutes
19
California Civil Code § 3426 et seq.............................................................................................. 2
20
21 California Code of Civil Procedure § 128.7 ........................................................................ passim
22 California Code of Civil Procedure §§ 2019, 2019.210 ........................................................... 4, 5
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TABLE OF AUTHORITIES
FP 41378025.2
1 MEMORANDUM OF POINTS AND AUTHORITIES
2 I. INTRODUCTION
3 Defendants UCOMMG, LLC, Unified Communications Group, Inc., Kenneth W.
4 Newbatt, Bianca Newbatt, Mitchell C. Lipkin, Michael J. Bellas, Cynthia Baker, and WesTele
5 Utility Solutions, LLC (“Defendants”) move the Court for an order imposing sanctions on
6 Plaintiff Butler America, LLC and its attorneys of record, Chora Young & Manasserian, on the
7 grounds that they violated Code of Civil Procedure section 128.7.
8 Defendants UCOMMG, Unified Communications, Kenneth Newbatt, Bianca Newbatt,
9 Mitchell Lipkin, and Michael Bellas (the “Nonresident Defendants”) are residents of states other
10 than California and have little to no connection to the state of California. Plaintiff’s Complaint
11 utterly failed to allege any factual allegations sufficient to show California has jurisdiction over
12 the Nonresident Defendants. Moreover, Plaintiff’s Complaint failed to allege the requisite level
13 of facts to properly plead any cause of action against all the Defendants, presumably because no
14 such facts exist.
15 Defendants were forced to incur substantial fees by filing a Motion to Dismiss after
16 removing the action to federal court. Even after having the benefit of reviewing Defendants’
17 Motion to Dismiss, Plaintiff filed a First Amended Complaint (“FAC”) that entirely failed to
18 correct the deficiencies outlined in Defendants’ Motion to Dismiss. Defendants were then forced
19 to incur unnecessary fees and costs by filing a second Motion to Dismiss in federal court and
20 then filing a corresponding demurrer and motion to quash summons before this Court. Plaintiff’s
21 failure to correct the numerous deficiencies contained within its FAC can lead the Court to only
22 one conclusion – that Plaintiff either failed to conduct a proper investigation or knowingly
23 brought (and maintained) this suit against Defendants without evidence to support its claims.
24 Plaintiff has continued to vexatiously pursue litigation against the Defendants.
25 This Court should not tolerate Plaintiff’s behavior and should sanction it accordingly
26 under Code of Civil Procedure section 128.7. These sanctions are also warranted to deter
27 Plaintiff and his counsel from engaging in similar conduct in the future.
28 ///
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MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS
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1 II. STATEMENT OF FACTS
2 A. Procedural Background
3 Plaintiff filed its original Complaint against Defendants in the Santa Barbara Superior
4 Court on November 20, 2020, alleging causes of action for (1) Breach of Contract; (2) Breach of
5 Implied Covenant of Good Faith and Fair Dealing; (3) Misappropriation of Trade Secrets (Civil
6 Code § 3426 et seq.); (4) Misappropriation of Trade Secrets (Common Law); (5) Conversion; (6)
7 Intentional Interference with Contractual Relations; (7) Intentional Interference with Prospective
8 Economic Advantage; and (8) Unfair Business Practices.
9 Defendants timely removed the action to this Court on January 4, 2021 on the basis of
10 diversity and fraudulent joinder. In support of the Notice of Removal, Defendants included
11 signed declarations from the Nonresident Defendants detailing that UCOMMG, Unified
12 Communications, Kenneth Newbatt, and Bianca Newbatt are residents of Washington, Mitchell
13 Lipkin is a resident of Minnesota, and Michael Bellas is a resident of North Carolina. Declaration
14 of Shayna Santiago (“Santiago Decl.”) ¶ 2, Ex. A. Plaintiff did not oppose Defendant’s removal
15 to federal court.
16 Defendants’ counsel alerted Plaintiff’s counsel to the jurisdictional issues regarding the
17 Nonresident Defendants, along with the other deficiencies in the Complaint, including Plaintiff’s
18 complete failure to allege sufficient facts to support its claims, during a phone call on January
19 13, 2021. Santiago Decl. ¶ 3. Despite numerous further meet and confer efforts, Plaintiff
20 declined to amend its Complaint and Defendants were forced to file multiple Motions to Dismiss.
21 B. Defendants Were Forced to Incur Fees by Filing Multiple Motions to Dismiss
22 The original Complaint acknowledged that Unified Communications is a dissolved
23 Washington corporation with its principal place in Washington. Complaint at ¶ 6. The
24 Complaint also stated that UCOMMG is a Nevada limited liability company with a principal
25 place of business in Washington. Id. at ¶ 8. Finally, the Complaint acknowledged that Kenneth
26 Newbatt and Bianca Newbatt are Washington residents, Mitchell Lipkin is a Minnesota resident,
27 and Michael Bellas is a North Carolina resident. Id. at ¶¶ 10, 12, 15, 17. The only statement
28 ///
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1 relating the five Nonresident Defendants to California is the vague allegation that the Nonresident
2 Defendants “conducted business in the State of California.” Id. at ¶¶ 7, 8, 10, 12, 15, 17.
3 Defendants filed their first Motion to Dismiss on March 26, 2021. Santiago Decl. ¶ 4,
4 Ex. B. The Motion to Dismiss detailed the multiple reasons why Plaintiff’s Complaint was
5 deficient and subject to dismissal, including the lack of personal jurisdiction over the Nonresident
6 Defendants, the preemption of multiple causes of action by the California Uniform Trade Secrets
7 Act (“CUTSA”), and the complete lack of factual support for its claims. As part of the Motion
8 to Dismiss, Defendants submitted sworn declarations from the Nonresident Defendants to
9 establish that no personal jurisdiction exists over those Defendants. Santiago Decl. ¶ 5, Ex. C.
10 Plaintiff failed to oppose Defendants’ Motion to Dismiss and instead filed a First
11 Amended Complaint (“FAC”) on April 16, 2021. Santiago Decl. ¶ 6, Ex. D. Aside from
12 removing three of the preempted causes of action and despite having the benefit of reviewing
13 Defendants’ original Motion to Dismiss, the FAC is largely identical to the original Complaint.
14 The FAC added almost no additional factual allegations in support of its claim of personal
15 jurisdiction over the Nonresident Defendants, except for the allegations that Mr. Lipkin and Mr.
16 Bellas visited Plaintiff’s headquarters in California numerous times and that Mr. Lipkin and Mr.
17 Bellas serviced clients in California while employed by Plaintiff. FAC ¶ 32. As discussed below,
18 these additional “facts” are demonstrably false.
19 The Court is permitted to consider evidence and declarations in determining whether
20 personal jurisdiction exists. (ViaView, Inc. v. Retzlaff (2016) 1 Cal.5th 198, 217; Kellman v.
21 Whole Foods Mkt., Inc. (N.D. Cal. 2018) 313 F.Supp.3d 1031, 1042.) Moreover, the Court may
22 award sanctions if a party fails to conduct a reasonable investigation into personal jurisdiction or
23 pleads jurisdictional allegations that are not well-grounded in fact after a reasonable inquiry.
24 (Sabek, Inc. v. Engelhard Corp. (1998) 65 Cal.App.4th 992, 1000-1001; Hendrix v. Naphtal (9th
25 Cir. 1992) 971 F.2d 398, 400; Perogeux, LLC v. Winkler (N.D. Cal. Mar. 15, 2017) Case No. 17-
26 cv-00572 NC.) Plaintiff either failed to make a reasonable inquiry at all or failed to plead
27 allegations as to personal jurisdiction in the FAC that are not well-grounded in fact after a
28 reasonable inquiry. Either way, Plaintiff’s has engaged in sanctionable conduct.
3
MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS
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1 The FAC also failed to correct the other deficiencies raised in Defendants’ first Motion
2 to Dismiss, including CUTSA’s preemption of several causes of action and Plaintiff’s failure to
3 plead specific and plausible facts in support of its claims.
4 Defendants sent a meet and confer correspondence requesting Plaintiff amend its FAC to
5 correct these deficiencies on April 23, 2021. Santiago Decl. ¶ 7. Ex. E. Defense counsel
6 specifically noted that if Defendants were forced to file a second motion to dismiss, they would
7 seek sanctions from the Court. Id. Plaintiff did not respond to Defendants’ letter. Id.
8 Accordingly, Defendants were forced to file a second Motion to Dismiss on April 30, 2021.
9 Santiago Decl. ¶ 8, Ex. F.
10 In response to Defendants’ 25-page Motion to Dismiss, Plaintiff filed a 9-page Opposition
11 that utterly failed to refute or even fully address the arguments in Defendants’ Motion. Santiago
12 Decl. ¶ 9, Ex. G. Plaintiff’s Opposition also failed to address the declarations provided by
13 Defendants regarding personal jurisdiction or provide any declarations or evidence in support of
14 its position that there is personal jurisdiction over the Nonresidents in California. Id.
15 On August 3, 2021, the District Court remanded this matter to state court and denied the
16 Motion to Dismiss discussed below as moot. Defendants tried once again to meet and confer
17 with Plaintiff regarding the deficiencies in the FAC prior to moving forward with motion work
18 in state court. Santiago Decl. ¶ 14, Ex. K. Plaintiff refused to address the deficiencies outlined
19 by Defendants and Defendants were forced to file a demurrer and a motion to quash summons
20 on September 22, 2021, which are set for hearing on December 3, 2021.
21 C. Plaintiff Refuses to Comply With Its Obligation under Code of Civil
22 Procedure section 2019.210 to Identify the Trade Secrets at Issue
23 In the context of a claim for misappropriation of trade secrets, section 2019.210 requires
24 an adequate trade secret disclosure before the plaintiff can pursue any discovery. (Code Civ.
25 Proc. § 2019.210 [“In any action alleging the misappropriation of a trade secret under the
26 Uniform Trade Secrets Act . . . , before commencing discovery relating to the trade secret, the
27 party alleging the misappropriation shall identify the trade secret with reasonable particularity . .
28 . .”].) As the Court of Appeal noted, “If [the plaintiff] does not know what its own trade secrets
4
MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS
FP 41378025.2
1 are, it has no basis for suggesting defendants misappropriated them.” (Perlan v. Therapeutics,
2 Inc. v. Superior Court (2009) 178 Cal.App.4th 1333, 1352.)
3 Plaintiff has refused to comply with its obligations under Code of Civil Procedure section
4 2019. Defendants have requested Plaintiff provide its trade secret numerous times beginning in
5 March 2021. Santiago Decl. ¶ 15, Ex. L. Nonetheless, Plaintiff has refused for the last seven
6 months to provide its disclosure. Defendants can only assume that Plaintiff’s failure to provide
7 its trade secret disclosures is because Plaintiff failed to complete a proper investigation prior to
8 filing this baseless claim, and accordingly is unable to describe the alleged trade secrets at issue.
9 III. PLAINTIFF AND ITS COUNSEL WERE GIVEN MONTHS OF TIME TO
10 WITHDRAW THIS BASELESS ACTION, BUT IT REMAINS PENDING
11 California Code of Civil Procedure section 128.7(c)(1), provides that notice of a motion
12 for sanctions pursuant to Section 128.7 shall not be filed with or presented to the court unless,
13 within 21 days after the service of the motion, the challenged paper, claim, defense, contention,
14 allegation, or denial is not withdrawn or appropriately corrected. (See Peake v. Underwood
15 (2014) 227 Cal.App.4th 428, 441.)
16 Plaintiff and its counsel have been on notice regarding the lack of jurisdiction over the
17 Nonresident Defendants and other defects with its Complaint since at least January 2021. Instead
18 of correcting these issues, Plaintiff filed a largely identical FAC in April 2021. Nevertheless,
19 Defendants have provided more than the requisite “safe harbor” time to Plaintiff and its counsel
20 to withdraw its FAC.
21 First, Defendants served a Motion for Rule 11 Sanctions on July 2, 2021 while the matter
22 was still pending before the district court. Santiago Decl. ¶ 10, Ex. H. Plaintiff provided a written
23 response on July 23, 2021, stating it would not withdraw the FAC. Santiago Decl. ¶ 11. Ex. I.
24 Defendants responded to Plaintiff’s letter on August 2, 2021, informing Plaintiff that they would
25 proceed with filing the instant motion. Santiago Decl. ¶ 12, Ex. J.
26 After the remand to state court, Plaintiff was provided an additional 21-day safe harbor
27 period to withdraw the FAC when Defendants served the instant motion on October 8, 2021.
28 ///
5
MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS
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1 Accordingly, Plaintiff has been given months of time to withdraw this baseless action, and
2 Defendants continue to incur legal fees to preserve their rights.
3 IV. LEGAL STANDARD FOR A SECTION 128.7 MOTION FOR SANCTIONS
4 “Under . . . Code of Civil Procedure section 128.7 . . . there are basically three types of
5 submitted papers that warrant sanctions: factually frivolous (not well grounded in fact); legally
6 frivolous (not warranted by existing law or a good faith argument for the extension, modification,
7 or reversal of existing law); and papers interposed for an improper purpose.” Guillemin v.
8 Stein (2002) 104 Cal.App.4th 156, 167, (emphasis added). As such, Section 128.7 “requires that
9 parties and their attorneys certify that pleadings or other written matters presented to the courts
10 have merit, ‘to the best of the person’s knowledge, information, and belief, formed after an
11 inquiry reasonable under the circumstances.’” (Musaelian v. Adams (2009) 45 Cal.4th 512, 516;
12 see also Olmstead v. Arthur J. Gallagher & Co. (2004) 32 Cal.4th 804, 810 [“Under section
13 128.7, every such document must be signed by counsel . . . . thereby [certifying] that to the best
14 of his knowledge, information, and belief, and after reasonable inquiry, the document is not
15 presented for an improper . . . and contains no allegations, factual or legal contentions, claims,
16 defenses, or denials that lack colorable support.”].) To satisfy the obligation under Section 128.7
17 to conduct a reasonable inquiry to determine if his or her client's claim was well-grounded in
18 fact, the attorney must “take into account [the adverse party's] evidence.” (Bucur v. Ahmad
19 (2016) 244 Cal.App.4th 175, 190.) “[F]ederal case law construing Rule 11 [of the Federal Rules
20 of Civil Procedure] is persuasive authority on the meaning of section 128.7.” (Ibid.)
21 Where an attorney signs and files a complaint on behalf of their client that contains
22 allegations without factual support, unsupported by existing law or a reasonable argument for a
23 change of existing law, or where a complaint is filed for an improper purpose, it is a violation of
24 Code of Civil Procedure section 128.7, subdivision (b). In such cases, the parties and their
25 attorney(s) are subject to monetary sanctions under subdivisions (c) and (d) of that section. (Id.
26 at (b)-(d).)
27 A claim is “factually frivolous” if it is “not well grounded in fact” and is “legally
28 frivolous” if it is “not warranted by existing law or a good faith argument for the extension,
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1 modification, or reversal of existing law.” (Bucur, supra, 244 Cal.App.4th at 189.) To recover
2 sanctions under Section 128.7, the movant need only show the challenged conduct is “objectively
3 unreasonable”; there is no requirement to show subjective bad faith.” (Guillemin, supra, 104
4 Cal.App.4th at 167.) Thus, the reasonableness of a party’s truth finding inquiry and due
5 diligence is measured under the following objective standard, which applies to both attorneys
6 and their clients: if the plaintiff does not believe the requisite evidence exists, but does actually
7 believe that it is likely to be discovered later, after a reasonable opportunity for further
8 investigation or discovery, the pleading must so state. (See Bockrath v. Aldrich Chemical Co.
9 (1999) 21 Cal.4th 71, 81-82.) A pleading is objectively unreasonable if and when any reasonable
10 attorney would agree that it is totally and completely without merit. (Bucur, supra, 244
11 Cal.App.4th at 189-90.)
12 As discussed below, Plaintiff and its counsel are seeking to litigate legally and factually
13 frivolous claims in the incorrect forum, and under inapplicable law. By continuing to pursue
14 these claims in a California court and under California law, Plaintiff has engaged in a misuse of
15 the litigation process in an effort to intimidate Defendants, caused unnecessary delay, and
16 needlessly increased the cost of litigation. As such, Defendants are entitled to sanctions against
17 Plaintiff and its counsel, jointly and severally, pursuant to Code of Civil Procedure Section 128.7.
18 V. SECTION 128.7 GRANTS THE COURT AUTHORITY TO IMPOSE
19 SANCTIONS ON PLAINTIFF AND ITS COUNSEL
20 A. Plaintiff Filed Its First Amended Complaint Despite Knowing No Personal
21 Jurisdiction Exists Over the Nonresident Defendants
22 It is plain that no “reasonable inquiry” of any degree was undertaken by Plaintiff or its
23 counsel as to whether this lawsuit could properly be brought against the Nonresident Defendants
24 in the State of California without concluding that it could not. Indeed, Plaintiff had direct
25 knowledge from Defendants’ meet and confer efforts and Defendants’ original Motion to
26 Dismiss that there is no specific or general jurisdiction over the Nonresident Defendants.
27 Plaintiff has offered no colorable argument to support this Court’s exercise of personal
28 jurisdiction for claims against the Nonresident Defendants from Washington, Michigan, and
7
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1 North Carolina for actions allegedly taken outside California. Multiple courts have found failure
2 to conduct a reasonable and competent inquiry into personal jurisdiction over nonresident
3 defendants as the basis to grant sanctions. (Love v. The Mail on Sunday, No. CV05-
4 7798ABCPJWX, 2006 WL 4046169, *6-7 (C.D. Cal. July 13, 2006); Jones v. Campbell
5 University, 322 F.Supp.3d 106, 109 (D.D.C. 2018); Lipkin v. Hunt, 573 F.Supp.2d 836, 844
6 (S.D.N.Y. 2008).)
7 Nonetheless, Plaintiff filed its FAC which continued to name the Nonresident Defendants
8 as parties to this action, thereby forcing Defendants to file a second Motion to Dismiss. Plaintiff’s
9 FAC did not include any further support for its claims of personal jurisdiction over the
10 Nonresident Defendants. Notably, Plaintiff did not even attempt to challenge the evidence
11 submitted by Defendants in support of the jurisdictional arguments in the Motion to Dismiss nor
12 did Plaintiff provide any evidence in support of its argument that jurisdiction is proper in
13 California.
14 The knowledge possessed by Plaintiff and its counsel is significant in assessing whether
15 an attorney’s conduct warrants sanctions because “the [trial] court should assess . . . ‘the situation
16 which existed when the paper was filed.’” (Hamer v. Career College Association (9th Cir. 1992)
17 979 F.2d 758.) At the time Plaintiff filed its FAC, it had the benefit of sworn declarations and
18 other evidence submitted by the Nonresident Defendants in support of its Motion to Dismiss.
19 That evidence unequivocally establishes that no personal jurisdiction exists in California over
20 those Defendants. Yet, Plaintiff and its counsel persisted by naming the Nonresident Defendants
21 in the FAC – causing Defendants additional unnecessary expenses all the while.
22 B. The FAC Contains False or Misleading Statements
23 The FAC filed by Plaintiff also includes demonstrably false statements. Inclusion of false
24 or misleading statements in a pleading can also serve as the basis for sanctions. (Pipe Trades
25 Council of N. Cal., U.A. Local 159 v. Underground Contractors Ass’n of N. Cal. (9th Cir. 1987)
26 835 F.2d 1275, 1280-81; Warren v. Guelker (9th Cir. 1994) 29 F.3d 1386, 1389.) Section 128.7
27 requires an attorney to certify that factual allegations in a pleading have evidentiary support, and
28 the failure to comply may warrant sanctions. (Code Civ. Proc. § 128.7(b)(3); Truesdell v. S. Cal.
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1 Permanente Med. Grp. (9th Cir. 2002) 293 F.3d 1146, 1153.) “In addition, the presence of some
2 supported allegations in a pleading does not necessarily shield from sanctions an attorney who
3 also includes unsupported allegations.” (Heller v. Cepia L.L.C. (9th Cir. 2014) 560 Fed.Appx.
4 678, 679 [affirming district court’s imposition of sanctions for factual misrepresentations in
5 complaint filed in trade secret misappropriation action].)
6 For example, the FAC alleges that the former employees of Plaintiff, including Mitchell
7 Lipkin, “made numerous trips to Plaintiff’s headquarters in Santa Barbara, California.” FAC ¶
8 32. This is a false statement. Mr. Lipkin has never been to Plaintiff’s headquarters. Declaration
9 of Mitchell Lipkin ¶ 2 (attached as Exhibit K to Santiago Decl.). The FAC also falsely alleges
10 in a conclusory fashion that WesTele has “continuously conducted business” in California. FAC
11 ¶ 32. As established in Defendants’ Notice of Removal (which Plaintiff had in its possession four
12 months prior to filing its FAC), WesTele has done no business, has had no business revenues,
13 has no employees, no income, no sales, no assets, and no transactions since its formation in July
14 2019. Santiago Decl. ¶ 3, Ex. B. Plaintiff has offered no facts or evidence demonstrating that
15 WesTele did any business in the state of California. Indeed, the sum total of the allegations are
16 nothing more than bare bones conclusory statements.
17 As a third example, the only allegations in the FAC as to Cynthia Baker are that Plaintiff
18 retained Ms. Baker “to do administrative and bookkeeping work for Butler on a contract basis.
19 Baker and Cindy maintained Unified email addresses while both were working for Butler. While
20 at Butler, Cindy had access to BIRT reports, processes, billing models, spreadsheets and
21 procedures.” FAC ¶ 67. These allegations fall woefully short to give rise to any cause of action
22 against Ms. Baker and Ms. Baker’s inclusion in the lawsuit appears to be nothing more than a
23 thinly veiled attempt to keep a portion of Plaintiff’s lawsuit pending in California, given the
24 Court’s lack of jurisdiction over the other Defendants.
25 Only two conclusions can be drawn from these false and misleading statements in
26 Plaintiff’s FAC. Either Plaintiff’s counsel failed to do a proper investigation regarding these
27 facts before filing the FAC or Plaintiff itself manufactured false allegations in order to bring this
28 lawsuit. Either way, this conduct is improper and should be sanctioned.
9
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1 C. Plaintiff and Its Attorneys Knew When They Filed the Complaint That It
2 Lacked Any Factual Support for Plaintiff’s Claims Against Defendants
3 Plaintiff and its attorneys either failed to investigate whether there were any facts to
4 support its claims against Defendants or did investigate and, despite the lack of any factual
5 support, sued Defendants anyway. For example, Plaintiff’s Complaint, FAC, and Opposition to
6 Defendants’ Motion to Dismiss is utterly void of any allegations as to how each Defendant
7 allegedly misappropriated any of Plaintiff’s trade secrets. Plaintiff’s derivative claims for
8 intentional interference, unfair competition, and breach of contract are similarly baseless.
9 Plaintiff has possession of most, if not all, of the relevant documents that would be expected, if
10 they existed, to provide at least some factual substance to its claims, including Plaintiff’s own
11 computer forensic examinations of its systems.
12 However, despite Plaintiff’s resources, possession of most if not all of the relevant
13 documents and other information, and months to review the materials and interview any
14 witnesses, Plaintiff’s operative FAC is completely devoid of
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1 Shayna Balch Santiago (SBN 304802) ELECTRONICALLY FILED E-Mail: ssantiago@fisherphillips.com Superior Court of California 2 FISHER & PHILLIPS LLP County of Santa Barbara 3200 N. Central Avenue, Suite 1550 Darrel E. Parker, Executive Officer 3 Phoenix, Arizona 85012-2487 11/19/2021 12:39 PM Telephone: (602) 281-3400 By: Sarah Sisto, Deputy 4 Facsimile: (602) 281-3401 5 Kathryn M. Evans (SBN 323190) E-Mail: kmevans@fisherphillips.com 6 FISHER & PHILLIPS LLP 4747 Executive Drive, Suite 1000 7 San Diego, California 92121 Telephone: (858) 597-9600 8 Facsimile: (858) 597-9601 9 Attorneys for Defendants, UCOMMG, LLC; Unified Communications Group, Inc.; 10 Kenneth W. Newbatt; Bianca Newbatt; Mitchell C. Lipkin; Michael J. Bellas; Jimmie Garrett Baker, Jr.; 11 WesTele Utility Solutions, LLC; and Cynthia Baker 12 SUPERIOR COURT OF THE STATE OF CALIFORNIA 13 FOR THE COUNTY OF SANTA BARBARA - ANACAPA DIVISION 14 BUTLER AMERICA, LLC, a Delaware CASE NO.: 20CV03877 limited liability company, [Unlimited Jurisdiction] 15 Plaintiff, Assigned for all purposes to the 16 Honorable Donna D. Geck, Dept. 4 v. 17 MEMORANDUM OF POINTS AND UCOMMG, LLC, a Nevada limited liability AUTHORITIES IN SUPPORT OF 18 company; UNIFIED COMMUNICATIONS DEFENDANTS’ MOTION FOR GROUP, INC., a dissolved Washington SANCTIONS PURSUANT TO CODE OF 19 corporation; KENNETH W. NEWBATT, an CIVIL PROCEDURE SECTIONS 128.7 individual; BIANCA NEWBATT, an 20 individual; MITCHELL C. LIPKIN, an [Filed concurrently with Notice of Motion; individual; MICHAEL J. BELLAS, an Declaration of Shayna Balch Santiago; and 21 individual; JIMMIE GARRETT BAKER, JR., [Proposed] Order] an individual; WESTELE UTILITY 22 SOLUTIONS, LLC, a California limited DATE: February 25, 2022 liability company; and DOES 1 through 50, TIME: 10:00 a.m. 23 inclusive, DEPT: 4 24 Defendants. Complaint Filed: November 20, 2020 Removal Filed: January 4, 2021 25 FAC Filed: April 16, 2021 Remanded to State Court: August 3, 2021 26 Trial Date: Not Set 27 28 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 TABLE OF CONTENTS 2 I. INTRODUCTION ............................................................................................................1 3 II. STATEMENT OF FACTS ...............................................................................................2 A. Procedural Background .........................................................................................2 4 B. Defendants Were Forced to Incur Fees by Filing Multiple Motions to 5 Dismiss ..................................................................................................................2 C. Plaintiff Refuses to Comply With Its Obligation under Code of Civil 6 Procedure section 2019.210 to Identify the Trade Secrets at Issue ......................4 7 III. PLAINTIFF AND ITS COUNSEL WERE GIVEN MONTHS OF TIME TO WITHDRAW THIS BASELESS ACTION, BUT IT REMAINS PENDING .................5 8 IV. LEGAL STANDARD FOR A SECTION 128.7 MOTION FOR SANCTIONS .............6 9 V. SECTION 128.7 GRANTS THE COURT AUTHORITY TO IMPOSE SANCTIONS ON PLAINTIFF AND ITS COUNSEL ....................................................7 10 A. Plaintiff Filed Its First Amended Complaint Despite Knowing No Personal Jurisdiction Exists Over the Nonresident Defendants ............................7 11 B. The FAC Contains False or Misleading Statements .............................................8 12 C. Plaintiff and Its Attorneys Knew When They Filed the Complaint That It Lacked Any Factual Support for Plaintiff’s Claims Against Defendants ...........10 13 VI. CONCLUSION ...............................................................................................................11 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 TABLE OF CONTENTS FP 41378025.2 1 TABLE OF AUTHORITIES 2 Page(s) 3 Federal Cases 4 California Arch. Building Prods., Inc. v. Franciscan Ceramics, Inc. 5 (9th Cir. 1987) 818 F.2d 1466 .............................................................................................. 10 6 Hamer v. Career College Association (9th Cir. 1992) 979 F.2d 758 .................................................................................................. 8 7 Heller v. Cepia L.L.C. 8 (9th Cir. 2014) 560 Fed.Appx. 678 ......................................................................................... 9 9 Hendrix v. Naphtal 10 (9th Cir. 1992) 971 F.2d 398 .................................................................................................. 3 11 Holgate v. Baldwin (9th Cir. 2005) 425 F.3d 671, 676.) ...................................................................................... 10 12 Jones v. Campbell University, 13 322 F.Supp.3d 106 (D.D.C. 2018) .......................................................................................... 8 14 Kellman v. Whole Foods Mkt., Inc. 15 (N.D. Cal. 2018) 313 F.Supp.3d 1031 .................................................................................... 3 16 King v. Idaho Funeral Services, Ass’n (9th Cir. 1988) 862 F.2d 744 ................................................................................................ 10 17 Lipkin v. Hunt, 18 573 F.Supp.2d 836 (S.D.N.Y. 2008)....................................................................................... 8 19 Love v. The Mail on Sunday, No. CV05-7798ABCPJWX, 2006 WL 4046169 (C.D. Cal. July 13, 2006) .......................... 8 20 21 Manuel v. Lucenti (N.D. Ill. Nov. 10, 2004). Case No. 04-C-2531.................................................................... 10 22 Perogeux, LLC v. Winkler 23 (N.D. Cal. Mar. 15, 2017) Case No. 17-cv-00572 NC ........................................................... 3 24 Pipe Trades Council of N. Cal., U.A. Local 159 v. Underground Contractors Ass’n of N. Cal. 25 (9th Cir. 1987) 835 F.2d 1275 ................................................................................................ 8 26 Truesdell v. S. Cal. Permanente Med. Grp. 27 (9th Cir. 2002) 293 F.3d 1146 ............................................................................................ 8, 9 28 1 TABLE OF AUTHORITIES FP 41378025.2 1 Warren v. Guelker (9th Cir. 1994) 29 F.3d 1386 .................................................................................................. 8 2 State Cases 3 4 Bockrath v. Aldrich Chemical Co. (1999) 21 Cal.4th 71 ............................................................................................................... 7 5 Bucur v. Ahmad 6 (2016) 244 Cal.App.4th 175 ............................................................................................... 6, 7 7 Guillemin v. Stein (2002) 104 Cal.App.4th 156 ............................................................................................... 6, 7 8 Musaelian v. Adams 9 (2009) 45 Cal.4th 512 ............................................................................................................. 6 10 Olmstead v. Arthur J. Gallagher & Co. 11 (2004) 32 Cal.4th 804 ............................................................................................................. 6 12 Peake v. Underwood (2014) 227 Cal.App.4th 428 ................................................................................................... 5 13 Perlan v. Therapeutics, Inc. v. Superior Court 14 (2009) 178 Cal.App.4th 1333 ................................................................................................. 5 15 Sabek, Inc. v. Engelhard Corp. 16 (1998) 65 Cal.App.4th 992 ..................................................................................................... 3 17 ViaView, Inc. v. Retzlaff (2016) 1 Cal.5th 198 ............................................................................................................... 3 18 State Statutes 19 California Civil Code § 3426 et seq.............................................................................................. 2 20 21 California Code of Civil Procedure § 128.7 ........................................................................ passim 22 California Code of Civil Procedure §§ 2019, 2019.210 ........................................................... 4, 5 23 24 25 26 27 28 2 TABLE OF AUTHORITIES FP 41378025.2 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 I. INTRODUCTION 3 Defendants UCOMMG, LLC, Unified Communications Group, Inc., Kenneth W. 4 Newbatt, Bianca Newbatt, Mitchell C. Lipkin, Michael J. Bellas, Cynthia Baker, and WesTele 5 Utility Solutions, LLC (“Defendants”) move the Court for an order imposing sanctions on 6 Plaintiff Butler America, LLC and its attorneys of record, Chora Young & Manasserian, on the 7 grounds that they violated Code of Civil Procedure section 128.7. 8 Defendants UCOMMG, Unified Communications, Kenneth Newbatt, Bianca Newbatt, 9 Mitchell Lipkin, and Michael Bellas (the “Nonresident Defendants”) are residents of states other 10 than California and have little to no connection to the state of California. Plaintiff’s Complaint 11 utterly failed to allege any factual allegations sufficient to show California has jurisdiction over 12 the Nonresident Defendants. Moreover, Plaintiff’s Complaint failed to allege the requisite level 13 of facts to properly plead any cause of action against all the Defendants, presumably because no 14 such facts exist. 15 Defendants were forced to incur substantial fees by filing a Motion to Dismiss after 16 removing the action to federal court. Even after having the benefit of reviewing Defendants’ 17 Motion to Dismiss, Plaintiff filed a First Amended Complaint (“FAC”) that entirely failed to 18 correct the deficiencies outlined in Defendants’ Motion to Dismiss. Defendants were then forced 19 to incur unnecessary fees and costs by filing a second Motion to Dismiss in federal court and 20 then filing a corresponding demurrer and motion to quash summons before this Court. Plaintiff’s 21 failure to correct the numerous deficiencies contained within its FAC can lead the Court to only 22 one conclusion – that Plaintiff either failed to conduct a proper investigation or knowingly 23 brought (and maintained) this suit against Defendants without evidence to support its claims. 24 Plaintiff has continued to vexatiously pursue litigation against the Defendants. 25 This Court should not tolerate Plaintiff’s behavior and should sanction it accordingly 26 under Code of Civil Procedure section 128.7. These sanctions are also warranted to deter 27 Plaintiff and his counsel from engaging in similar conduct in the future. 28 /// 1 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 II. STATEMENT OF FACTS 2 A. Procedural Background 3 Plaintiff filed its original Complaint against Defendants in the Santa Barbara Superior 4 Court on November 20, 2020, alleging causes of action for (1) Breach of Contract; (2) Breach of 5 Implied Covenant of Good Faith and Fair Dealing; (3) Misappropriation of Trade Secrets (Civil 6 Code § 3426 et seq.); (4) Misappropriation of Trade Secrets (Common Law); (5) Conversion; (6) 7 Intentional Interference with Contractual Relations; (7) Intentional Interference with Prospective 8 Economic Advantage; and (8) Unfair Business Practices. 9 Defendants timely removed the action to this Court on January 4, 2021 on the basis of 10 diversity and fraudulent joinder. In support of the Notice of Removal, Defendants included 11 signed declarations from the Nonresident Defendants detailing that UCOMMG, Unified 12 Communications, Kenneth Newbatt, and Bianca Newbatt are residents of Washington, Mitchell 13 Lipkin is a resident of Minnesota, and Michael Bellas is a resident of North Carolina. Declaration 14 of Shayna Santiago (“Santiago Decl.”) ¶ 2, Ex. A. Plaintiff did not oppose Defendant’s removal 15 to federal court. 16 Defendants’ counsel alerted Plaintiff’s counsel to the jurisdictional issues regarding the 17 Nonresident Defendants, along with the other deficiencies in the Complaint, including Plaintiff’s 18 complete failure to allege sufficient facts to support its claims, during a phone call on January 19 13, 2021. Santiago Decl. ¶ 3. Despite numerous further meet and confer efforts, Plaintiff 20 declined to amend its Complaint and Defendants were forced to file multiple Motions to Dismiss. 21 B. Defendants Were Forced to Incur Fees by Filing Multiple Motions to Dismiss 22 The original Complaint acknowledged that Unified Communications is a dissolved 23 Washington corporation with its principal place in Washington. Complaint at ¶ 6. The 24 Complaint also stated that UCOMMG is a Nevada limited liability company with a principal 25 place of business in Washington. Id. at ¶ 8. Finally, the Complaint acknowledged that Kenneth 26 Newbatt and Bianca Newbatt are Washington residents, Mitchell Lipkin is a Minnesota resident, 27 and Michael Bellas is a North Carolina resident. Id. at ¶¶ 10, 12, 15, 17. The only statement 28 /// 2 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 relating the five Nonresident Defendants to California is the vague allegation that the Nonresident 2 Defendants “conducted business in the State of California.” Id. at ¶¶ 7, 8, 10, 12, 15, 17. 3 Defendants filed their first Motion to Dismiss on March 26, 2021. Santiago Decl. ¶ 4, 4 Ex. B. The Motion to Dismiss detailed the multiple reasons why Plaintiff’s Complaint was 5 deficient and subject to dismissal, including the lack of personal jurisdiction over the Nonresident 6 Defendants, the preemption of multiple causes of action by the California Uniform Trade Secrets 7 Act (“CUTSA”), and the complete lack of factual support for its claims. As part of the Motion 8 to Dismiss, Defendants submitted sworn declarations from the Nonresident Defendants to 9 establish that no personal jurisdiction exists over those Defendants. Santiago Decl. ¶ 5, Ex. C. 10 Plaintiff failed to oppose Defendants’ Motion to Dismiss and instead filed a First 11 Amended Complaint (“FAC”) on April 16, 2021. Santiago Decl. ¶ 6, Ex. D. Aside from 12 removing three of the preempted causes of action and despite having the benefit of reviewing 13 Defendants’ original Motion to Dismiss, the FAC is largely identical to the original Complaint. 14 The FAC added almost no additional factual allegations in support of its claim of personal 15 jurisdiction over the Nonresident Defendants, except for the allegations that Mr. Lipkin and Mr. 16 Bellas visited Plaintiff’s headquarters in California numerous times and that Mr. Lipkin and Mr. 17 Bellas serviced clients in California while employed by Plaintiff. FAC ¶ 32. As discussed below, 18 these additional “facts” are demonstrably false. 19 The Court is permitted to consider evidence and declarations in determining whether 20 personal jurisdiction exists. (ViaView, Inc. v. Retzlaff (2016) 1 Cal.5th 198, 217; Kellman v. 21 Whole Foods Mkt., Inc. (N.D. Cal. 2018) 313 F.Supp.3d 1031, 1042.) Moreover, the Court may 22 award sanctions if a party fails to conduct a reasonable investigation into personal jurisdiction or 23 pleads jurisdictional allegations that are not well-grounded in fact after a reasonable inquiry. 24 (Sabek, Inc. v. Engelhard Corp. (1998) 65 Cal.App.4th 992, 1000-1001; Hendrix v. Naphtal (9th 25 Cir. 1992) 971 F.2d 398, 400; Perogeux, LLC v. Winkler (N.D. Cal. Mar. 15, 2017) Case No. 17- 26 cv-00572 NC.) Plaintiff either failed to make a reasonable inquiry at all or failed to plead 27 allegations as to personal jurisdiction in the FAC that are not well-grounded in fact after a 28 reasonable inquiry. Either way, Plaintiff’s has engaged in sanctionable conduct. 3 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 The FAC also failed to correct the other deficiencies raised in Defendants’ first Motion 2 to Dismiss, including CUTSA’s preemption of several causes of action and Plaintiff’s failure to 3 plead specific and plausible facts in support of its claims. 4 Defendants sent a meet and confer correspondence requesting Plaintiff amend its FAC to 5 correct these deficiencies on April 23, 2021. Santiago Decl. ¶ 7. Ex. E. Defense counsel 6 specifically noted that if Defendants were forced to file a second motion to dismiss, they would 7 seek sanctions from the Court. Id. Plaintiff did not respond to Defendants’ letter. Id. 8 Accordingly, Defendants were forced to file a second Motion to Dismiss on April 30, 2021. 9 Santiago Decl. ¶ 8, Ex. F. 10 In response to Defendants’ 25-page Motion to Dismiss, Plaintiff filed a 9-page Opposition 11 that utterly failed to refute or even fully address the arguments in Defendants’ Motion. Santiago 12 Decl. ¶ 9, Ex. G. Plaintiff’s Opposition also failed to address the declarations provided by 13 Defendants regarding personal jurisdiction or provide any declarations or evidence in support of 14 its position that there is personal jurisdiction over the Nonresidents in California. Id. 15 On August 3, 2021, the District Court remanded this matter to state court and denied the 16 Motion to Dismiss discussed below as moot. Defendants tried once again to meet and confer 17 with Plaintiff regarding the deficiencies in the FAC prior to moving forward with motion work 18 in state court. Santiago Decl. ¶ 14, Ex. K. Plaintiff refused to address the deficiencies outlined 19 by Defendants and Defendants were forced to file a demurrer and a motion to quash summons 20 on September 22, 2021, which are set for hearing on December 3, 2021. 21 C. Plaintiff Refuses to Comply With Its Obligation under Code of Civil 22 Procedure section 2019.210 to Identify the Trade Secrets at Issue 23 In the context of a claim for misappropriation of trade secrets, section 2019.210 requires 24 an adequate trade secret disclosure before the plaintiff can pursue any discovery. (Code Civ. 25 Proc. § 2019.210 [“In any action alleging the misappropriation of a trade secret under the 26 Uniform Trade Secrets Act . . . , before commencing discovery relating to the trade secret, the 27 party alleging the misappropriation shall identify the trade secret with reasonable particularity . . 28 . .”].) As the Court of Appeal noted, “If [the plaintiff] does not know what its own trade secrets 4 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 are, it has no basis for suggesting defendants misappropriated them.” (Perlan v. Therapeutics, 2 Inc. v. Superior Court (2009) 178 Cal.App.4th 1333, 1352.) 3 Plaintiff has refused to comply with its obligations under Code of Civil Procedure section 4 2019. Defendants have requested Plaintiff provide its trade secret numerous times beginning in 5 March 2021. Santiago Decl. ¶ 15, Ex. L. Nonetheless, Plaintiff has refused for the last seven 6 months to provide its disclosure. Defendants can only assume that Plaintiff’s failure to provide 7 its trade secret disclosures is because Plaintiff failed to complete a proper investigation prior to 8 filing this baseless claim, and accordingly is unable to describe the alleged trade secrets at issue. 9 III. PLAINTIFF AND ITS COUNSEL WERE GIVEN MONTHS OF TIME TO 10 WITHDRAW THIS BASELESS ACTION, BUT IT REMAINS PENDING 11 California Code of Civil Procedure section 128.7(c)(1), provides that notice of a motion 12 for sanctions pursuant to Section 128.7 shall not be filed with or presented to the court unless, 13 within 21 days after the service of the motion, the challenged paper, claim, defense, contention, 14 allegation, or denial is not withdrawn or appropriately corrected. (See Peake v. Underwood 15 (2014) 227 Cal.App.4th 428, 441.) 16 Plaintiff and its counsel have been on notice regarding the lack of jurisdiction over the 17 Nonresident Defendants and other defects with its Complaint since at least January 2021. Instead 18 of correcting these issues, Plaintiff filed a largely identical FAC in April 2021. Nevertheless, 19 Defendants have provided more than the requisite “safe harbor” time to Plaintiff and its counsel 20 to withdraw its FAC. 21 First, Defendants served a Motion for Rule 11 Sanctions on July 2, 2021 while the matter 22 was still pending before the district court. Santiago Decl. ¶ 10, Ex. H. Plaintiff provided a written 23 response on July 23, 2021, stating it would not withdraw the FAC. Santiago Decl. ¶ 11. Ex. I. 24 Defendants responded to Plaintiff’s letter on August 2, 2021, informing Plaintiff that they would 25 proceed with filing the instant motion. Santiago Decl. ¶ 12, Ex. J. 26 After the remand to state court, Plaintiff was provided an additional 21-day safe harbor 27 period to withdraw the FAC when Defendants served the instant motion on October 8, 2021. 28 /// 5 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 Accordingly, Plaintiff has been given months of time to withdraw this baseless action, and 2 Defendants continue to incur legal fees to preserve their rights. 3 IV. LEGAL STANDARD FOR A SECTION 128.7 MOTION FOR SANCTIONS 4 “Under . . . Code of Civil Procedure section 128.7 . . . there are basically three types of 5 submitted papers that warrant sanctions: factually frivolous (not well grounded in fact); legally 6 frivolous (not warranted by existing law or a good faith argument for the extension, modification, 7 or reversal of existing law); and papers interposed for an improper purpose.” Guillemin v. 8 Stein (2002) 104 Cal.App.4th 156, 167, (emphasis added). As such, Section 128.7 “requires that 9 parties and their attorneys certify that pleadings or other written matters presented to the courts 10 have merit, ‘to the best of the person’s knowledge, information, and belief, formed after an 11 inquiry reasonable under the circumstances.’” (Musaelian v. Adams (2009) 45 Cal.4th 512, 516; 12 see also Olmstead v. Arthur J. Gallagher & Co. (2004) 32 Cal.4th 804, 810 [“Under section 13 128.7, every such document must be signed by counsel . . . . thereby [certifying] that to the best 14 of his knowledge, information, and belief, and after reasonable inquiry, the document is not 15 presented for an improper . . . and contains no allegations, factual or legal contentions, claims, 16 defenses, or denials that lack colorable support.”].) To satisfy the obligation under Section 128.7 17 to conduct a reasonable inquiry to determine if his or her client's claim was well-grounded in 18 fact, the attorney must “take into account [the adverse party's] evidence.” (Bucur v. Ahmad 19 (2016) 244 Cal.App.4th 175, 190.) “[F]ederal case law construing Rule 11 [of the Federal Rules 20 of Civil Procedure] is persuasive authority on the meaning of section 128.7.” (Ibid.) 21 Where an attorney signs and files a complaint on behalf of their client that contains 22 allegations without factual support, unsupported by existing law or a reasonable argument for a 23 change of existing law, or where a complaint is filed for an improper purpose, it is a violation of 24 Code of Civil Procedure section 128.7, subdivision (b). In such cases, the parties and their 25 attorney(s) are subject to monetary sanctions under subdivisions (c) and (d) of that section. (Id. 26 at (b)-(d).) 27 A claim is “factually frivolous” if it is “not well grounded in fact” and is “legally 28 frivolous” if it is “not warranted by existing law or a good faith argument for the extension, 6 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 modification, or reversal of existing law.” (Bucur, supra, 244 Cal.App.4th at 189.) To recover 2 sanctions under Section 128.7, the movant need only show the challenged conduct is “objectively 3 unreasonable”; there is no requirement to show subjective bad faith.” (Guillemin, supra, 104 4 Cal.App.4th at 167.) Thus, the reasonableness of a party’s truth finding inquiry and due 5 diligence is measured under the following objective standard, which applies to both attorneys 6 and their clients: if the plaintiff does not believe the requisite evidence exists, but does actually 7 believe that it is likely to be discovered later, after a reasonable opportunity for further 8 investigation or discovery, the pleading must so state. (See Bockrath v. Aldrich Chemical Co. 9 (1999) 21 Cal.4th 71, 81-82.) A pleading is objectively unreasonable if and when any reasonable 10 attorney would agree that it is totally and completely without merit. (Bucur, supra, 244 11 Cal.App.4th at 189-90.) 12 As discussed below, Plaintiff and its counsel are seeking to litigate legally and factually 13 frivolous claims in the incorrect forum, and under inapplicable law. By continuing to pursue 14 these claims in a California court and under California law, Plaintiff has engaged in a misuse of 15 the litigation process in an effort to intimidate Defendants, caused unnecessary delay, and 16 needlessly increased the cost of litigation. As such, Defendants are entitled to sanctions against 17 Plaintiff and its counsel, jointly and severally, pursuant to Code of Civil Procedure Section 128.7. 18 V. SECTION 128.7 GRANTS THE COURT AUTHORITY TO IMPOSE 19 SANCTIONS ON PLAINTIFF AND ITS COUNSEL 20 A. Plaintiff Filed Its First Amended Complaint Despite Knowing No Personal 21 Jurisdiction Exists Over the Nonresident Defendants 22 It is plain that no “reasonable inquiry” of any degree was undertaken by Plaintiff or its 23 counsel as to whether this lawsuit could properly be brought against the Nonresident Defendants 24 in the State of California without concluding that it could not. Indeed, Plaintiff had direct 25 knowledge from Defendants’ meet and confer efforts and Defendants’ original Motion to 26 Dismiss that there is no specific or general jurisdiction over the Nonresident Defendants. 27 Plaintiff has offered no colorable argument to support this Court’s exercise of personal 28 jurisdiction for claims against the Nonresident Defendants from Washington, Michigan, and 7 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 North Carolina for actions allegedly taken outside California. Multiple courts have found failure 2 to conduct a reasonable and competent inquiry into personal jurisdiction over nonresident 3 defendants as the basis to grant sanctions. (Love v. The Mail on Sunday, No. CV05- 4 7798ABCPJWX, 2006 WL 4046169, *6-7 (C.D. Cal. July 13, 2006); Jones v. Campbell 5 University, 322 F.Supp.3d 106, 109 (D.D.C. 2018); Lipkin v. Hunt, 573 F.Supp.2d 836, 844 6 (S.D.N.Y. 2008).) 7 Nonetheless, Plaintiff filed its FAC which continued to name the Nonresident Defendants 8 as parties to this action, thereby forcing Defendants to file a second Motion to Dismiss. Plaintiff’s 9 FAC did not include any further support for its claims of personal jurisdiction over the 10 Nonresident Defendants. Notably, Plaintiff did not even attempt to challenge the evidence 11 submitted by Defendants in support of the jurisdictional arguments in the Motion to Dismiss nor 12 did Plaintiff provide any evidence in support of its argument that jurisdiction is proper in 13 California. 14 The knowledge possessed by Plaintiff and its counsel is significant in assessing whether 15 an attorney’s conduct warrants sanctions because “the [trial] court should assess . . . ‘the situation 16 which existed when the paper was filed.’” (Hamer v. Career College Association (9th Cir. 1992) 17 979 F.2d 758.) At the time Plaintiff filed its FAC, it had the benefit of sworn declarations and 18 other evidence submitted by the Nonresident Defendants in support of its Motion to Dismiss. 19 That evidence unequivocally establishes that no personal jurisdiction exists in California over 20 those Defendants. Yet, Plaintiff and its counsel persisted by naming the Nonresident Defendants 21 in the FAC – causing Defendants additional unnecessary expenses all the while. 22 B. The FAC Contains False or Misleading Statements 23 The FAC filed by Plaintiff also includes demonstrably false statements. Inclusion of false 24 or misleading statements in a pleading can also serve as the basis for sanctions. (Pipe Trades 25 Council of N. Cal., U.A. Local 159 v. Underground Contractors Ass’n of N. Cal. (9th Cir. 1987) 26 835 F.2d 1275, 1280-81; Warren v. Guelker (9th Cir. 1994) 29 F.3d 1386, 1389.) Section 128.7 27 requires an attorney to certify that factual allegations in a pleading have evidentiary support, and 28 the failure to comply may warrant sanctions. (Code Civ. Proc. § 128.7(b)(3); Truesdell v. S. Cal. 8 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 Permanente Med. Grp. (9th Cir. 2002) 293 F.3d 1146, 1153.) “In addition, the presence of some 2 supported allegations in a pleading does not necessarily shield from sanctions an attorney who 3 also includes unsupported allegations.” (Heller v. Cepia L.L.C. (9th Cir. 2014) 560 Fed.Appx. 4 678, 679 [affirming district court’s imposition of sanctions for factual misrepresentations in 5 complaint filed in trade secret misappropriation action].) 6 For example, the FAC alleges that the former employees of Plaintiff, including Mitchell 7 Lipkin, “made numerous trips to Plaintiff’s headquarters in Santa Barbara, California.” FAC ¶ 8 32. This is a false statement. Mr. Lipkin has never been to Plaintiff’s headquarters. Declaration 9 of Mitchell Lipkin ¶ 2 (attached as Exhibit K to Santiago Decl.). The FAC also falsely alleges 10 in a conclusory fashion that WesTele has “continuously conducted business” in California. FAC 11 ¶ 32. As established in Defendants’ Notice of Removal (which Plaintiff had in its possession four 12 months prior to filing its FAC), WesTele has done no business, has had no business revenues, 13 has no employees, no income, no sales, no assets, and no transactions since its formation in July 14 2019. Santiago Decl. ¶ 3, Ex. B. Plaintiff has offered no facts or evidence demonstrating that 15 WesTele did any business in the state of California. Indeed, the sum total of the allegations are 16 nothing more than bare bones conclusory statements. 17 As a third example, the only allegations in the FAC as to Cynthia Baker are that Plaintiff 18 retained Ms. Baker “to do administrative and bookkeeping work for Butler on a contract basis. 19 Baker and Cindy maintained Unified email addresses while both were working for Butler. While 20 at Butler, Cindy had access to BIRT reports, processes, billing models, spreadsheets and 21 procedures.” FAC ¶ 67. These allegations fall woefully short to give rise to any cause of action 22 against Ms. Baker and Ms. Baker’s inclusion in the lawsuit appears to be nothing more than a 23 thinly veiled attempt to keep a portion of Plaintiff’s lawsuit pending in California, given the 24 Court’s lack of jurisdiction over the other Defendants. 25 Only two conclusions can be drawn from these false and misleading statements in 26 Plaintiff’s FAC. Either Plaintiff’s counsel failed to do a proper investigation regarding these 27 facts before filing the FAC or Plaintiff itself manufactured false allegations in order to bring this 28 lawsuit. Either way, this conduct is improper and should be sanctioned. 9 MEMORANDUM IN SUPPORT OF DEFS’ MOTION FOR SANCTIONS FP 41378025.2 1 C. Plaintiff and Its Attorneys Knew When They Filed the Complaint That It 2 Lacked Any Factual Support for Plaintiff’s Claims Against Defendants 3 Plaintiff and its attorneys either failed to investigate whether there were any facts to 4 support its claims against Defendants or did investigate and, despite the lack of any factual 5 support, sued Defendants anyway. For example, Plaintiff’s Complaint, FAC, and Opposition to 6 Defendants’ Motion to Dismiss is utterly void of any allegations as to how each Defendant 7 allegedly misappropriated any of Plaintiff’s trade secrets. Plaintiff’s derivative claims for 8 intentional interference, unfair competition, and breach of contract are similarly baseless. 9 Plaintiff has possession of most, if not all, of the relevant documents that would be expected, if 10 they existed, to provide at least some factual substance to its claims, including Plaintiff’s own 11 computer forensic examinations of its systems. 12 However, despite Plaintiff’s resources, possession of most if not all of the relevant 13 documents and other information, and months to review the materials and interview any 14 witnesses, Plaintiff’s operative FAC is completely devoid of