Carlson v. Town of Mountain Village

          ORDER

          Scott T. Varholak United States Magistrate Judge

         This matter is before the Court on the Motion for Sanctions (the “Motion”) filed by Defendants Telluride School District R-1 (the “District”) and Colleen Mahoney (collectively, the “Moving Defendants”) [#130], which was referred to this Court [#131]. This Court has carefully considered the Motion and related briefing, argument from the June 4, 2019 Motion Hearing, and the entire case file. For the following reasons, the Motion is GRANTED IN PART and DENIED IN PART.^[1]

         I. BACKGROUND

         Plaintiff initiated this action on December 3, 2017. [#1] On December 26, 2017, Plaintiff filed her First Amended Complaint [#11], and the following day she filed a corrected First Amended Complaint to redact the names of minors [#12]. Neither the original Complaint nor the First Amended Complaint named the District or Ms. Mahoney as defendants. [##1, 12]

         On June 17, 2018, Plaintiff filed her Motion for Leave to File Proposed Second Amended Complaint. [#53] On July 19, 2018, this Court granted that motion, but rather than accepting the proposed Second Amended Complaint that Plaintiff had proffered, the Court ordered Plaintiff to file a new Second Amended Complaint that removed certain irrelevant and especially vitriolic allegations. [#63] On August 14, 2018, Plaintiff filed her Second Amended Complaint. [#68] Plaintiff's Second Amended Complaint named the District and Ms. Mahoney as Defendants. [Id.] The Second Amended Complaint alleged that all Defendants, including the Moving Defendants, violated the Racketeer Influenced and Corrupt Organizations Act of 1970 (“RICO”), the Colorado Organized Crime Control Act (“COCCA”), and the Civil Rights Act of 1871, codified as 42 U.S.C. §§ 1981-1988. [Id.] The Second Amended Complaint alleged wire fraud as the predicate offense for the RICO and COCCA claims. [Id. at ¶¶ 339-40, 348]

         The Moving Defendants and Defendants Town of Mountain Village, Colorado (“Mountain Village”), Chris Broady, Tom Halper, Brian Carlson, Kip Albanese, and Nathan Santos each moved to dismiss the Second Amended Complaint. [##72, 75, 101, 106, 124] In the Motion to Dismiss filed by the Moving Defendants on December 10, 2018 (the “Moving Defendants' Motion to Dismiss”), the Moving Defendants made several arguments in support of dismissal of the claims against them. [See generally #101] Of relevance to the instant Motion, the Moving Defendants argued that: (1) Plaintiff lacked standing to bring RICO and COCCA claims because she did not suffer injury to business or property [id. at 5-7], and (2) Plaintiff did not allege that the District or Ms. Mahoney invested in, controlled, or conducted an “enterprise” through a “pattern of racketeering activity” [id. at 7-9]. On February 4, 2019, Plaintiff responded to the Moving Defendants' Motion to Dismiss [#111], and on February 19, 2019, the Moving Defendants filed a reply [#116].

         Meanwhile, on February 19, 2019, counsel for the Moving Defendants served Plaintiff's counsel, George Allen, with a copy of the instant Motion. [#130 at 1; #130-1] Mr. Allen did not respond within the 21 days provided by Federal Rule of Civil Procedure 11(c)(2).^[2] [#130 at 2] The Moving Defendants thus filed the instant Motion on March 14, 2019. [#130]

         On March 25, 2019, Chief Judge Brimmer issued an order granting the Motions to Dismiss filed by Defendants Mountain Village, Broady, and Carlson. [#137] In his Order, Chief Judge Brimmer found that the Second Amended Complaint failed to plead the continuity required to establish a pattern of racketeering activity under RICO.^[3] [Id. at 9-11] Chief Judge Brimmer likewise concluded that Plaintiff failed to plausibly plead either a COCCA or Section 1983 claim.^[4] [#137 at 11-16] The same day Chief Judge Brimmer issued his order dismissing Defendants Mountain Village, Broady, and Carlson [id.], Plaintiff filed a Notice of Dismissal of the instant Action [#138]. As a result of the Notice of Dismissal, the claims against the Moving Defendants were dismissed without prejudice. [#141]

         On April 13, 2019, Plaintiff filed her Response to the instant Motion. [#143] In the Response, Plaintiff requested a hearing on the Motion. [Id. at 8] On April 26, 2019, the Moving Defendants filed their Reply. [#148] On May 3, 2019, this Court granted Plaintiff's request for a hearing [#151], and on June 4, 2019, this Court held a hearing on the Motion [##172, 187]. Mr. Allen appeared in person and Plaintiff appeared telephonically for the hearing. [Id.] Plaintiff also submitted an additional declaration, dated June 3, 2019, in support of her opposition to the Motion. [#171] Since the hearing, Plaintiff has submitted both an additional Supplemental brief in opposition to the Motion (the “Supplement”) [#180], and additional documentation for the Court's consideration [## 179, 181, 182].

         II. JURISDICTION

         In her response to the Motion, Plaintiff relies upon a 1996 decision from the Middle District of Florida to argue that “a party that has voluntarily withdrawn the offending Complaint is no longer subject to sanctions, as the jurisdiction of the District Court has terminated.” [#143 at 4 (citing Morroni v. Gunderson, 169 F.R.D. 168, 171 (M.D. Fla. 1996))] Contrary to Plaintiff's representation, however, the Morroni decision did not address the court's jurisdiction to impose Rule 11 sanctions following the voluntary dismissal of a complaint. Instead, the court in Morroni merely held that, pursuant to the safe-harbor provision found in Rule 11(c), “a party who seeks Rule 11 sanctions based upon allegations in a complaint, cannot wait until the action has been voluntarily dismissed by the opposing party because the party who voluntarily dismisses a case has withdrawn the offending pleading by dismissing the case.” 169 F.R.D. at 171. The Morroni decision thus has no applicability here, because the defendants in Morroni did not file their motion for Rule 11 sanctions until two months after the plaintiffs had voluntarily dismissed their claims, whereas here, Plaintiff did not voluntarily dismiss her claims until after the Moving Defendants filed the instant Motion and thus after the safe-harbor period had expired. Moreover, the Tenth Circuit has held that even when a court lacks subject-matter jurisdiction over the substantive merits of a case, such as by the filing of a notice of voluntary dismissal, “it retains the inherent authority to issue orders on matters collateral to the merits and to conduct sanction proceedings and to impose any sanction for abusive conduct for which sanctions are authorized by the federal rules of procedure or federal statutes, including awarding costs or attorney fees, imposing punishment for criminal contempt, and issuing sanctions under Rule 11.” Lundahl v. Halabi, 600 Fed.Appx. 596, 605-06 (10th Cir. 2014).

         III. STANDARD OF REVIEW

         Federal Rule of Civil Procedure 11(b) provides:

         By presenting to the court a pleading, written motion, or other paper- whether by signing, filing, submitting, or later advocating it-an attorney or unrepresented party certifies that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:

(1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation;

(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery; and

(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on ...