Jarrah M. Elgadi v. Ideal Development, LLC.

• Court: Superior Court of The Virgin Islands
• Decided: February 3, 2022
• Docket: ST-20-CV-20
• Status: Unpublished

Opinion

IN THE SUPERIOR COURT OF THE VIRGIN ISLANDS DIVISION OF ST THOMAS AND ST JOHN

JARRAH M ELGADI ) CASE NO ST 2020 CV 00020 ) Plaintiff ) ACTION FOR DECREE OF vs ) JUDICIAL DISSOLUTION AND WINDUP ) IDEAL DEVELOPMENT LLC ) ) Defendant )

Cite as 2022 VI Super 14U

MEMORANDUM OPINION AND ORDER

111 THIS MATTER is before the Court on

1 Plaintiff’s Motion For Sanctions Pursuant To V I R CIV P 11 And The Court 3 Inherent Authority ( Motion”) filed October 18 2021; and

2 Plaintiff’s Memorandum Of Law In Support Of Plaintiff’s Motion For Sanctions Pursuant To V I R CIV P 11 And The Court 5 Inherent Authority ( Memorandum ) filed October 19 2021

112 Plaintiff Jarrah M Elgadi s (“Elgadi ) Motion will be denied in part insofar as it requests the Court to direct a party to amend an Answer and Counterclaim The Court will grant the Motion in part insofar as it requests attorney 3 fees for the filing of the instant Motion Finally the Court will reserve judgment on the request for a sanction of attomey’s fees for Elgadi 5 defense of false allegations or claims until such time as those claims and allegations have been adjudicated or dismissed

I INTRODUCTION

113 Elgadi moves the Court to impose sanctions against Defendant Ideal Development, LLC ( Ideal ) and its counsel Namosha Boykin, Esquire pursuant to Virgin Islands Rules of Civil Procedure 11(b) and 11(c) as well as the Court 3 own inherent authority I Elgadi alleges that Ideal s Answer and Counterclaims contains multiple violations of the prohibition against presenting the Court with a pleading for an improper purpose’ and that it contains ‘ denials allegations and claims and other legal contentions that contain demonstrably false statements of fact ’ as well as it advances “meritless legal claims and defenses that are not warranted by existing law or any good faith argument for the extension or modification of existing law 2 Specifically

1Pl 5 Mot l 7 Pl 5 Mot l Jarrah M Elgadi v Ideal Development LLC 2022 VI Super 14U Case No ST 2020 CV 00020 Memorandum Opinion and Order Page 2 of 7

Elgadi states that Idea 5 Answer and counterclaims contains unfounded denials false representations of fact and asserts a meritless claim for abuse of process 3

114 Elgadi states that he has complied with the “safe harbor” provision of Rule 1 1(c) by serving a Draft Motion For Sanctions on Ideal s counsel and that he allowed for twenty one (21) days for Ideal to withdraw; the draft copy has been provided to the Court along with emails between Elgadi and Ideal s counsels 4 Elgadi requests that Ideal’s Answer and Counterclaims be struck from the record, that the Court issue an Order requiring Ideal to file an Amended Answer as well as an Order for Ideal and counsel to pay Elgadi s costs and attorney’s fees, and any additional sanctions as the Court deems appropriate ’ Elgadi 5 Motion is unopposed

115 Elgadi states that Ideal s denials in response to paragraphs 11 6 22 7 23,8 and 249 are “objectively and demonstrativer false and/or deliberately misleading ‘0 Essentially Ideal denies that a membership interest in the company was sold to Elgadi Ideal states it lacks sufficient information as to whether Elgadi obtained a Tax Status Report and it denies owing taxes, Ideal states it lacks sufficient information as to whether Elgadi got an Affidavit from the Corporations Division [of the Virgin Islands Government] and denies that it is not in good standing with Virgin Islands Government and Ideal denies that Elgadi brought any alleged deficiencies to the attention of Ideal by a letter dated November 25 2019 1'

116 Elgadi attached a copy of the Assignment document as Exhibit C which purports to show that a membership interest in the company was sold to Elgadi, he attached as Exhibit E the November 25 2019 letter which also includes the Tax Status Report and as Exhibit F Elgadi attached the email exchange with the members of Ideal which acknowledged receipt of the letter Elgadi further states that not only are Ideal s denials demonstrably false, but that since Elgadi commenced this action on January 15 2020 an updated review of Ideal 3 tax status reveals the following 1) Taxes penalties and interest due for Parcel 141 Rem had increased to $39 289 25 as of September 10 2021 and remain unpaid for the years 2017 2021' 2) Taxes, penalties and interest due for Parcel 14M 1 were $12 851 78 as of September 10 2021 and remain unpaid for 2017

P1 5 Mot I 4 Pl 5 Mot I 5 Pl 5 Mot 2 6 11] l ofthe Complaint states On or about September 2 2016 Joseph sold and assigned 1/2 of his 49% membership interest in the Company to Plaintiff for a payment of THREE HUNDRED SIXTY TWO THOUSAND DOLLARS ($362 000 00) 7 1122 of the Complaint states Plaintiff has obtained a Tax Status Report from the Office of the Tax Assessor that revealed that the Company has not paid real property taxes for 2017 2018 and 2019 for the Properties As a result the Company now owes taxes penalties and interest for Parcel 14M 1 in the amount 0f$7 444 48 and taxes penalties and interest for Parcel 14} Rem in the amount of $22 757 50 8 1123 of the Complaint states “Plaintiff has obtained an Affidavit from the Corporations Division which reveals that the Company has failed to pay annual franchise taxes or file annual reports that were due on June 30, 2017 June 30 2018 and June 30 2019 and as a result is not in good standing 9 1124 of the Complaint states “By letter dated November 25 2019 Plaintiff brought these deficiencies t0 the attention of the Company and the other members and requested their cooperation in providing mformation and addressing these ISSUES ‘0 Pl 5 Memorandum 3 “ Def 5 Answer And Counterclaim 2 4 Jana]: M Elgadi v Ideal Development LLC 2022 V1 Super 14U Case No ST 2020 CV 00020 Memorandum Opinion and Order Page 3 0f 7

2021; 3) On February 19, 2020, after commencement of this action, ldeal’s Annual Report due June 30, 2017 was filed and on March 6 2020, Ideal s Annual Reports that were due in 2018 and 2019 were filed 12 Copies of the Tax Status Reports for Parcels 14] Rem and 14M 1 were attached as Exhibit G and H respectively, and copies of the Annual Reports were attached as Exhibit I

117 Elgadi also asserts that the records provided by him also demonstrate how the allegations in paragraphs 91 ‘3 and 9214 of the Counterclaim are ‘ demonstrably false 1’ Elgadi contends that the managing members “failure to maintain Ideal’s good standing by timely filing annual reports and paying annual fees” as well as Ideal’s failure to pay property taxes constitutes evidence of mismanagement which was not manufacture[d] by Elgadi but based on publicly available evidence '6 Elgadi argues that he had the right to commence this action under title 13 § 1801(4) of the Virgin Islands Code 17 Further Elgadi argues that the allegations in paragraphs 10318 and 104‘9 of the Counterclaim are additionally demonstrably false 20 Elgadi asserts that the demand letter served on Ideal 5 other members on November 25, 2019 shows he notified members of Ideal and tried to remedy his concerns 21

118 Elgadi also asserts that Count II of the Counterclaim Abuse of Process is based solely on the fact that he commenced and then served this action on Ideal 22 Elgadi cites to Lee J Rohn & Assoczates LLC v Griffiths23 and szz Constr LLC v Parlor24 for the principle that the mere act of commencing a lawsuit and serving a summons cannot constitute abuse of process 2’ Elgadi argues that ldeal’s counsel compounded her Rule 11 violations by refusing to use the safe harbor time period to voluntarily amend ldeal’s Answer to correct the false denials and allegations and to voluntarily dismiss the meritless abuse of process claim 26 Elgadi further asserts that sanctions are also warranted against Ideal and not just ldeal’s counsel because Ideal 3 primary representative in this action is Shorn T Joseph Mr Joseph is a member of the Virgin Islands Bar ’ 27 Elgadi also asserts that sanctions are justified because Joseph previously ‘ submitted an

'7 P1 ’5 Memorandum 6 131191 of Def 5 Answer and Counterclaim states No mismanagement or failure to manage exists in the case ofldeal ’ '4 1192 of Def 5 Answer and Counterclaim states Elgadi manufactured allegations of mismanagement and failure to manage in connection with Ideal in order to use 13 V 1 C § 1801(4) to reach the Courts '5 P1 5 Memorandum 6 ‘6 P1 3 Memorandum 7 ‘7 P1 5 Memorandum 7 ‘8 11103 of Def 5 Answer and Counterclaim states Elgadi has pursued the claims alleged in Civil No ST 20 CV 20 without first notifying both members of Ideal of his concerns '9 11104 of Def 3 Answer and Counterclaim states Elgadi has pursued the claims alleged in Civil No ST 20 CV 20 without first trying to remedy the issues underlying those concerns ’0 Pl 5 Memorandum 7 7‘ Pl 5 Memorandum 7 7’ P1 5 Memorandum 8 2020 VI Super 106U 4Case No ST 2013 CV 011 VI 2016 V1 LEX1S1(VI Super Ct Jan 15 2016) ’5 Pl 5 Memorandum 8 76 P1 5 Memorandum 9 ’7 P1 5 Memorandum 9 Jarrah M Elgadi v Ideal Development LLC 2022 VI Super l4U Case No ST 2020 CV 00020 Memorandum Opinion and Order Page 4 of 7

Affidavit falsely stating that opposing counsel was the author of a document that he himself drafted ”28

119 Elgadi asserts that even after providing irrefutable evidence of Ideal 5 errors, Ideal and counsel chose to double down by filing their Answer and Counterclaims based upon blatant falsehoods and as a result Elgadi has incurred the expense of filing a motion to dismiss the abuse of process counterclaim under Rules 12(b) and (c) and Plaintiff has incurred the cost of filing this motion for sanctions ”29 It is Elgadi s contention that money damages are warranted here as the ‘ offending denials and allegations in Ideal’s Answer and Counterclaims are objectively unreasonable The denials are false The allegations are false The abuse of process claim is baseless and clearly fails under established Virgin Islands law and precedent ’ and Ideal chose to stand by its false pleadings instead of rectifying them 30 Finally, Elgadi asserts that Ideal will continue to file false affidavits and pleadings unless the Court imposes sanctions 3'

II LEGAL STANDARD

1110 Virgin Islands Rule ofCivil Procedure 1 1(b) states ‘ [b]y presenting to the court a pleading written motion or other paper whether by signing, filing submitting or later advocating it an attorney or self represented party certifies that to the best of the person’s knowledge information, and belief, formed after an inquiry reasonable under the circumstances ’ that

(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 belief or a lack of information

(5) that the applicable Virgin Islands law has been cited including authority for and against the positions being advocated by the party 32

78 Pl 5 Memorandum 9 79 Pl 3 Memorandum 10 30 P] s Memorandum 12 3' Pl 5 Memorandum 13 v1 R CIV P (ll)(b) Jarrah M Elgadi v Ideal Development LLC 2022 VI Super l4U Case No ST 2020 CV 00020 Memorandum Opinion and Order Page 5 of 7

1111 Virgin Islands Rule of Civil Procedure 11(c) provides for sanctions for a Violation of Rule 11(b) as well as the procedures counsel must follow in making a motion for sanctions, including the twenty one (21) day safe harbor provision, as well as the requirement that any order imposing sanctions must describe the sanctioned conduct and explain the basis of the sanctions 33

1112 Outside of the Virgin Islands courts have found that sanctions may be imposed upon a party when in a Complaint or Answer factual allegations are frivolously denied when the allegations are true and the party knew that they were true or would have known that they were true after conducting a reasonable inquiry 34 This is particularly the case when a cursory investigation would reveal the falsity of the allegations, and even more so when the falsity is brought to the attention of a party through discovery or after having been served with a motion containing evidence of their falsity 3’ Motions for sanctions may be coupled with motions for default judgment or summary judgment 36

III ANALYSIS

1113 Elgadi requests that the Court strike Ideal’s Answer and Counterclaim and order a new Amended Answer and Counterclaim filed with certain central representations of fact changed and the abuse of process claim dismissed In effect Elgadi’s request is the same as would be made in a motion to dismiss or in a motion for summary judgment as the Court would be dismissing a claim and the Court would be essentially making a finding of fact by supporting an allegation over a denial Further, the Court does not find that ordering a party to amend an Answer and Counterclaim with specific denials and claims stricken from it to be an appropriate sanction if a party’s factual allegations are frivolous and it’s claims baseless the allegations and claims should

3 V1 R Clv P (11)(c) 4 Williams v R W Cannon Inc Case No 08 60168 C1V UNGARO/SIMONTON 2008 U S Dist LEXIS 82916 at *8 (S D Fla Sept 24 2008) 35 Id at *8 12 (citations omitted) (citing first Bake; v Alderman 158 F 3d 516 524 (I 1th Cir 1998) then Gutierre v C1132 0fH1a/eah 729 F Supp 1329 1334 (S D Fla 1990))

First there is no question that it was frivolous for Defendants to assert these factual denials because there was no evidence to support them and in fact Defendants were aware that they were untrue Second assuming that it was necessary to conduct any investigation to conclude that their denials were frivolous even the most cursory investigation would have made it clear that they were frivolous Defendants have not asserted any reason to excuse their failure to conduct such a cursory investigation Even if it could be argued that the failure of Defendants counsel to uncover these basic facts was excusable when he filed the initial Answer there is no basis in the record to excuse the fact that he reasserted the same frivolous denials in the Amended Answer even after those facts had come to light through discovery and even though he had been served with Plaintiff‘s motion for sanctions which explained in detail how and why Defendants‘ assertions were frivolous

see also Jones v International Riding Helmets 49 F 3d 692 (1 1th Cir 1995) (affirming sanctions against a lawyer who filed a complaint when a cursory prelim inary investigation would have revealed that the company being sued in a products liability action was incorporated after the allegedly defective product was manufactured) 6See eg Williams v R W Cannon Inc Case No 08 60168 CIV UNGARO 2008 U S Dist LEXIS 67490 at *2 (S D Fla Sept 4 2008) ( As a preliminary matter the Court addresses Plaintiff’s Motion for Entry of Default and for Sanctions with respect to Plaintiff’s Renewed Motion for Summary Judgment ) Jarrah M Elgadi v Ideal Development LLC 2022 VI Super 14U Case No ST 2020 CV 00020 Memorandum Opinion and Order Page 6 0f 7

be dismissed or summarily judged on their merits before sanctions are assessed This reasoning is strengthened by Elgadi s admitted intention to file a Rule 12(b) motion as well 37

1114 Elgadi however, has made an unopposed showing that certain denials are frivolous and easily refuted by the available evidence such as the denial that Elgadi contacted Ideal or the denial that Ideal was not behind on legally required payments Additionally, Elgadi has shown that certain claims are not based in either existing law or a nonfrivolous argument for extending the law namely the claim that Elgadi is liable for abuse of process by pursuing his dissolution case Thus, while the Court prefers to address the claims and allegations on their merits Elgadi has certainly shown the criteria for sanctions under Virgin Islands Rule of Civil Procedure 11 have been met

1115 Therefore, the Court will deny Elgadi’s request that the Court strike Ideal 5 Answer and Counterclaim and direct Ideal to file an amended Answer and Counterclaim The Court will grant in part Elgadi 3 request for a reward of attorney 5 fees Specifically the Court will award Elgadi his reasonable attorney 5 fees for the filing fees and costs of preparing the instant sanctions motion Insofar as Elgadi also requests sanctions in the form of attorney 5 fees for responding to the allegedly false accusations and baseless claims the Court will reserve judgment until such time as the claims have been adjudicated or dismissed Elgadi may then renew his request for sanctions premised on having to respond to false accusations and baseless claims

1116 Accordingly it is hereby

ORDERED that Plaintiff‘s Motion For Sanctions Pursuant To V I R CIV P 11 And The Court 3 Inherent Authority, filed October 18 2021 is DENIED in part insofar as the motion requests the Court to strike allegations and claims and order an Amended Answer and Counterclaim filed by the Defendant and it is further

ORDERED that Plaintiff’s Motion For Sanctions Pursuant To V I R CIV P 11 And The Court 5 Inherent Authority filed October 18 2021 is GRANTED in part insofar as it requests attorney 5 fees for demonstrating violations of V I R CIV P 11 ; and it is further

ORDERED that on or before March 15, 2022 Plaintiff’s counsel SHALL FILE an affidavit with an accounting of the reasonable cost and fees incurred in drafting and filing Plaintiff’s Motion For Sanctions Pursuant To V I R CIV P 11 And The Court 5 Inherent Authority filed October 18 2021 and it is further

ORDERED that the Court RESERVES JUDGMENT 0n Plaintiff’s Motion For Sanctions Pursuant To V I R CIV P 11 And The Court 5 Inherent Authority filed October 18 2021 to the extent that Plaintiff requests sanctions and attorney 5 fees for responding to Defendant Ideal s allegations, denials, and counterclaims and it is further

’7 Pl 3 Memorandum 10 Jarrah M Elgar]: v Ideal Development LLC 2022 VI Super l4U Case No ST 2020 CV 00020 Memorandum Opinion and Order Page 7 of 7

ORDERED that a copy of this Memorandum Opinion and Order shall be directed to counsel of record

DATED February i 2022 Z EM W 2 )M 0‘00 DENISE M FRA COIS Judge of the Superior Court of the Virgin Islands

ATTEST TAMARA CHARLES Clerk of the Court

BY $103001 odwlaow Q)( LATOYA MACRO Court Clerk Supervisor / /