1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 IN RE OUTLAW LABORATORY, LP Case No.: 18-cv-840-GPC-BGS
12 LITIGATION. ORDER DENYING MOTION FOR 13 RECONSIDERATION.
14 (ECF No. 204.) 15 16 Before the Court is Tauler Smith, LLP’s (“Tauler Smith”) motion for 17 reconsideration, (ECF No. 204), of the Court’s April 23, 2020 Order denying three 18 motions, including as relevant here, Tauler Smith’s motion to dismiss the second 19 amended counterclaims and third-party complaint brought by the Stores. (ECF No. 190.) 20 In sum, Tauler Smith asserts that the Court erred in denying the motion because “bad- 21 faith litigation conduct cannot form the basis of a charge of mail fraud or wire fraud.” 22 (ECF No. 204 at 6.) 23 Having considered the Parties’ papers and the applicable law, the Court DENIES 24 Tauler Smith’s motion for the reasons below. 25 I. Background 26 The Court adopts the facts as stated in the April 23, 2020 Order. The Court adds 27 that, on May 29, 2020, Tauler Smith filed the instant motion for reconsideration. (ECF 1 No. 204.) On June 5, 2020, the Stores filed a response. (ECF No. 221.) On June 12, 2020, 2 Tauler Smith filed a reply. (ECF No. 225.) 3 II. Legal Standard 4 A motion for reconsideration is appropriate if the district court (1) is presented 5 with newly discovered evidence; (2) commits clear error or its initial decision was 6 manifestly unjust; or (3) if there is an intervening change in controlling law. Sch. Dist. 7 No. 1J, Multnomah County, Or. v. ACandS, Inc., 5 F.3d 1255, 1262 (9th Cir. 1993); see 8 also Ybarra v. McDaniel, 656 F.3d 984, 998 (9th Cir. 2011). “[A] motion for 9 reconsideration should not be granted, absent highly unusual circumstances . . .” Marlyn 10 Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 880 (9th Cir. 2009) 11 (quotation omitted); McDowell v. Calderon, 197 F.3d 1253, 1255 (9th Cir. 1999). 12 Reconsideration is an “extraordinary remedy, to be used sparingly in the interests of 13 finality and conservation of judicial resources.” Kona Enters., Inc. v. Estate of Bishop, 14 229 F.3d 877, 890 (9th Cir. 2000). 15 Reconsideration “cannot be used to ask the Court to rethink what the Court has 16 already thought through merely because a party disagrees with the Court’s decision.” 17 Beaver v. Tarsadia Hotels, 29 F. Supp. 3d 1294, 1301–02 (S.D. Cal. 2014), aff’d, 816 18 F.3d 1170 (9th Cir. 2016); Collins v. D.R. Horton, Inc., 252 F. Supp. 2d 936, 938 (D. Az. 19 2003). It also “may not be used to raise arguments or present evidence for the first time 20 when they could reasonably have been raised earlier in the litigation.” Marlyn 21 Nutraceuticals, Inc., 571 F.3d at 880 (quoting Kona Enters., Inc., 229 F.3d 890). 22 In addition, Local Civil Rule 7.1(i)(1) provides that a motion for reconsideration 23 must include an affidavit or certified statement of a party or attorney “setting forth the 24 material facts and circumstances surrounding each prior application, including inter alia: 25 (1) when and to what judge the application was made, (2) what ruling or decision or order 26 was made thereon, and (3) what new and different facts and circumstances are claimed to 27 exist which did not exist, or were not shown upon such prior application.” Local Civ. R. 1 7.1(i)(1). Ultimately, “[w]hether or not to grant reconsideration is committed to the sound 2 discretion of the court.” Navajo Nation v. Confederated Tribes & Bands of the Yakama 3 Indian Nation, 331 F.3d 1041, 1046 (9th Cir. 2003). 4 III. Analysis 5 Tauler Smith’s motion fails to present a reason why the Court should reconsider its 6 decision, much less evidence of “clear error” or a “manifestly unjust” decision. 7 A. Tauler Smith’s Motion is Procedurally Deficient. 8 Tauler Smith presents no new evidence or legal precedent under which the Court 9 should re-evaluate its arguments. Instead, Tauler Smith block quotes a string cite 10 presented in its initial motion as a footnote and asks that the Court take a second look at 11 the cited cases, including the only Ninth Circuit decision cited therein, First Pac. 12 Bancorp, Inc. v. Bro, 847 F.2d 542, 547 (9th Cir. 1988). (ECF No. 204-1 at 10–16 (citing 13 ECF No. 143-1 at 21–23)). 14 Having already considered Tauler Smith’s moving papers, the Court rejects this 15 argument given that a motion for reconsideration “cannot be used to ask the Court to 16 rethink what the Court has already thought through merely because a party disagrees with 17 the Court’s decision.” Beaver, 29 F. Supp. 3d at 1301–02. “Such disagreements should be 18 dealt with in the normal appellate process, not on a motion for reconsideration.” Shields 19 v. Frontier Tech., LLC, No. CV-11-01159-PHX, 2011 WL 13157066, at *1 (D. Ariz. Oct. 20 19, 2011). 21 B. The Stores Allege Tauler Smith Participated in a RICO Scheme Based 22 Upon Wire Fraud and the Court’s Decision was Not Clear Error. 23 Moving to the merits of Tauler Smith’s motion, the Court finds nothing that would 24 support a finding of “clear error” with respect to the April 23, 2020 motion. 25 First, the Ninth Circuit’s decision First Pac. Bancorp, Inc. is consistent with the 26 Court’s April 23, 2020 and does not support a finding that the Court committed “clear 27 error” here. In First Pac. Bancorp, Inc., the Ninth Circuit affirmed a district court’s 1 summary judgment in favor of a group of bank shareholders facing a RICO suit brought 2 by the bank after they threatened to sue it. First Pac. Bancorp, Inc., 847 F.2d at 543. 3 Applying the Second Circuit’s decision in United States v. Dixon, the Ninth Circuit found 4 that the “record,” i.e., the bank shareholders’ unfiled derivative suit and alleged threats, 5 “d[id] not support mail fraud” because the shareholders did not act “in furtherance of 6 some larger scheme contemplating pecuniary loss to someone or direct pecuniary gain . . 7 .” Id. at 547 (quoting United States v. Dixon, 536 F.2d 1388, 1399 (2d Cir. 1976)). 8 This case thus provides for two takeaways. First, because the Stores adequately 9 allege Tauler Smith participated in a scheme to defraud the Stores of money, (see ECF 10 No. 114 at ¶ 6), and as the underlying facts here differ from those of First Pac. Bancorp, 11 Inc., the Court finds that First Pac. Bancorp, Inc. is distinguishable. Second, because the 12 Ninth Circuit considered the fact-specific record of First Pac. Bancorp, Inc. in reaching a 13 conclusion that there had been no mail fraud, and did not instead announce a general rule 14 prohibiting the application of RICO to all litigation conduct, the opinion does not 15 preclude the Court’s decision on April 23, 2020 – even if First Pac. Bancorp, Inc. were 16 applicable on the facts. See also Living Designs, Inc. v. E.I.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 IN RE OUTLAW LABORATORY, LP Case No.: 18-cv-840-GPC-BGS
12 LITIGATION. ORDER DENYING MOTION FOR 13 RECONSIDERATION.
14 (ECF No. 204.) 15 16 Before the Court is Tauler Smith, LLP’s (“Tauler Smith”) motion for 17 reconsideration, (ECF No. 204), of the Court’s April 23, 2020 Order denying three 18 motions, including as relevant here, Tauler Smith’s motion to dismiss the second 19 amended counterclaims and third-party complaint brought by the Stores. (ECF No. 190.) 20 In sum, Tauler Smith asserts that the Court erred in denying the motion because “bad- 21 faith litigation conduct cannot form the basis of a charge of mail fraud or wire fraud.” 22 (ECF No. 204 at 6.) 23 Having considered the Parties’ papers and the applicable law, the Court DENIES 24 Tauler Smith’s motion for the reasons below. 25 I. Background 26 The Court adopts the facts as stated in the April 23, 2020 Order. The Court adds 27 that, on May 29, 2020, Tauler Smith filed the instant motion for reconsideration. (ECF 1 No. 204.) On June 5, 2020, the Stores filed a response. (ECF No. 221.) On June 12, 2020, 2 Tauler Smith filed a reply. (ECF No. 225.) 3 II. Legal Standard 4 A motion for reconsideration is appropriate if the district court (1) is presented 5 with newly discovered evidence; (2) commits clear error or its initial decision was 6 manifestly unjust; or (3) if there is an intervening change in controlling law. Sch. Dist. 7 No. 1J, Multnomah County, Or. v. ACandS, Inc., 5 F.3d 1255, 1262 (9th Cir. 1993); see 8 also Ybarra v. McDaniel, 656 F.3d 984, 998 (9th Cir. 2011). “[A] motion for 9 reconsideration should not be granted, absent highly unusual circumstances . . .” Marlyn 10 Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 880 (9th Cir. 2009) 11 (quotation omitted); McDowell v. Calderon, 197 F.3d 1253, 1255 (9th Cir. 1999). 12 Reconsideration is an “extraordinary remedy, to be used sparingly in the interests of 13 finality and conservation of judicial resources.” Kona Enters., Inc. v. Estate of Bishop, 14 229 F.3d 877, 890 (9th Cir. 2000). 15 Reconsideration “cannot be used to ask the Court to rethink what the Court has 16 already thought through merely because a party disagrees with the Court’s decision.” 17 Beaver v. Tarsadia Hotels, 29 F. Supp. 3d 1294, 1301–02 (S.D. Cal. 2014), aff’d, 816 18 F.3d 1170 (9th Cir. 2016); Collins v. D.R. Horton, Inc., 252 F. Supp. 2d 936, 938 (D. Az. 19 2003). It also “may not be used to raise arguments or present evidence for the first time 20 when they could reasonably have been raised earlier in the litigation.” Marlyn 21 Nutraceuticals, Inc., 571 F.3d at 880 (quoting Kona Enters., Inc., 229 F.3d 890). 22 In addition, Local Civil Rule 7.1(i)(1) provides that a motion for reconsideration 23 must include an affidavit or certified statement of a party or attorney “setting forth the 24 material facts and circumstances surrounding each prior application, including inter alia: 25 (1) when and to what judge the application was made, (2) what ruling or decision or order 26 was made thereon, and (3) what new and different facts and circumstances are claimed to 27 exist which did not exist, or were not shown upon such prior application.” Local Civ. R. 1 7.1(i)(1). Ultimately, “[w]hether or not to grant reconsideration is committed to the sound 2 discretion of the court.” Navajo Nation v. Confederated Tribes & Bands of the Yakama 3 Indian Nation, 331 F.3d 1041, 1046 (9th Cir. 2003). 4 III. Analysis 5 Tauler Smith’s motion fails to present a reason why the Court should reconsider its 6 decision, much less evidence of “clear error” or a “manifestly unjust” decision. 7 A. Tauler Smith’s Motion is Procedurally Deficient. 8 Tauler Smith presents no new evidence or legal precedent under which the Court 9 should re-evaluate its arguments. Instead, Tauler Smith block quotes a string cite 10 presented in its initial motion as a footnote and asks that the Court take a second look at 11 the cited cases, including the only Ninth Circuit decision cited therein, First Pac. 12 Bancorp, Inc. v. Bro, 847 F.2d 542, 547 (9th Cir. 1988). (ECF No. 204-1 at 10–16 (citing 13 ECF No. 143-1 at 21–23)). 14 Having already considered Tauler Smith’s moving papers, the Court rejects this 15 argument given that a motion for reconsideration “cannot be used to ask the Court to 16 rethink what the Court has already thought through merely because a party disagrees with 17 the Court’s decision.” Beaver, 29 F. Supp. 3d at 1301–02. “Such disagreements should be 18 dealt with in the normal appellate process, not on a motion for reconsideration.” Shields 19 v. Frontier Tech., LLC, No. CV-11-01159-PHX, 2011 WL 13157066, at *1 (D. Ariz. Oct. 20 19, 2011). 21 B. The Stores Allege Tauler Smith Participated in a RICO Scheme Based 22 Upon Wire Fraud and the Court’s Decision was Not Clear Error. 23 Moving to the merits of Tauler Smith’s motion, the Court finds nothing that would 24 support a finding of “clear error” with respect to the April 23, 2020 motion. 25 First, the Ninth Circuit’s decision First Pac. Bancorp, Inc. is consistent with the 26 Court’s April 23, 2020 and does not support a finding that the Court committed “clear 27 error” here. In First Pac. Bancorp, Inc., the Ninth Circuit affirmed a district court’s 1 summary judgment in favor of a group of bank shareholders facing a RICO suit brought 2 by the bank after they threatened to sue it. First Pac. Bancorp, Inc., 847 F.2d at 543. 3 Applying the Second Circuit’s decision in United States v. Dixon, the Ninth Circuit found 4 that the “record,” i.e., the bank shareholders’ unfiled derivative suit and alleged threats, 5 “d[id] not support mail fraud” because the shareholders did not act “in furtherance of 6 some larger scheme contemplating pecuniary loss to someone or direct pecuniary gain . . 7 .” Id. at 547 (quoting United States v. Dixon, 536 F.2d 1388, 1399 (2d Cir. 1976)). 8 This case thus provides for two takeaways. First, because the Stores adequately 9 allege Tauler Smith participated in a scheme to defraud the Stores of money, (see ECF 10 No. 114 at ¶ 6), and as the underlying facts here differ from those of First Pac. Bancorp, 11 Inc., the Court finds that First Pac. Bancorp, Inc. is distinguishable. Second, because the 12 Ninth Circuit considered the fact-specific record of First Pac. Bancorp, Inc. in reaching a 13 conclusion that there had been no mail fraud, and did not instead announce a general rule 14 prohibiting the application of RICO to all litigation conduct, the opinion does not 15 preclude the Court’s decision on April 23, 2020 – even if First Pac. Bancorp, Inc. were 16 applicable on the facts. See also Living Designs, Inc. v. E.I. DuPont de Nemours & Co., 17 431 F.3d 353, 364 (9th Cir.2005) (noting the nonexistence of “any federal case which 18 holds that a party’s litigation conduct in a prior case is entitled to absolute immunity and 19 cannot form the basis of a subsequent federal RICO claim”). Thus, the Court finds that 20 Tauler Smith’s treatment of First Pac. Bancorp, Inc. is incorrect. (ECF No. 204-1 at 9) 21 (incorrectly stating that “First Pac. held that litigation conduct cannot constitute RICO 22 predicate acts”). 23 Beyond First Pac. Bancorp, the Court finds Tauler Smith’s reliance on other 24 authority unpersuasive. (ECF No. 204-1 at 10–16.) Having again reviewed each case, the 25 Court is once more satisfied that none of Tauler Smith’s cited authorities provide for the 26 general rule that a law firm’s conduct can never serve as the predicate act for mail fraud 27 or RICO. For example, in Tauler Smith’s first cited case, Snow Ingredients, the court 1 considered the specific conduct at issue, found that it does not rise to the level of mail 2 fraud, and did not make a general rule that no law firm’s conduct could do so. Snow 3 Ingredients, Inc. v. SnoWizard, Inc., 833 F.3d 512, 524 (5th Cir. 2016). In other cases, the 4 respective courts considered conduct much narrower than that alleged here, and again 5 found that the subject conduct did not, under the circumstances, rise to the level of a 6 predicate act for RICO. See, e.g., United States v. Pendergraft, 297 F.3d 1198, 1208 7 (11th Cir. 2002) (“Since there was no intent to deceive, there was no ‘scheme to defraud,’ 8 and we hold that Pendergraft and Spielvogel’s mailing of litigation documents, even 9 perjurious ones, did not violate the mail-fraud statute”); McDonald v. Schencker, 18 F.3d 10 491, 493 (7th Cir. 1994) (holding that the filing of a sur-reply brief for the alleged 11 purpose of garnering additional fees was not mail fraud because the attorney was 12 reasonably “attempting to get in the last word”); I.S. Joseph Co. v. J. Lauritzen A/S, 751 13 F.2d 265, 267 (8th Cir. 1984) (focusing only on “two threats to file a civil action” in a 14 single case). The same is true, of course, where courts are presented with allegations that 15 only involve the standard conduct of attorneys, like filing or serving legal documents. 16 See, e.g., Republic of Kazakhstan v. Stati, 380 F. Supp. 3d 55, 61 (D.D.C. 2019), aff’d 17 sub nom. Republic of Kazakhstan, Ministry of Justice v. Stati, 801 F. App’x 780 (D.C. 18 Cir. 2020); Desert Plants Conservancy LLC v. Parsons, No. CV 11-01599-PHX, 2012 19 WL 13019154, at *5 (D. Ariz. July 6, 2012). And while Tauler Smith is correct to note 20 that some of these courts express concern that permitting mere litigation conduct to be 21 charged under RICO could chill access to the Court, nothing in these cases suggests the 22 Court erred in its April 23, 2020 given the concerning allegations at issue here, much less 23 that the Court’s decision was “manifestly unjust.” Sch. Dist. No. 1J, Multnomah County, 24 Or., 5 F.3d at 1262. 25 At its core, it appears that Tauler Smith’s position misunderstands the Court’s prior 26 holdings. The Court has not found that any litigation conduct can amount to wire fraud. 27 Rather, the Court has repeatedly found that the specific allegations against Outlaw and 1 Tauler Smith amount to more than mere litigation conduct. (See ECF No. 190 at 11–13 2 (“the Court has found that the SACC adequately alleges a pattern of racketeering activity 3 vis-à-vis multiple instances of mail fraud”); ECF No. 113 at 18 (“it is apparent that 4 Counterclaimants are alleging more than just garden-variety advocacy.”)) As previously 5 explained, that conduct allegedly encompasses “the firm’s genesis of the scheme, its 6 creation of ‘TriSteel’ as a front product, and its dispatch of ‘investigators’ to take photos 7 of storefronts to identify new demand letter recipients.” (ECF No. 113 at 18). It likewise 8 includes conceiving of the demand letters, threatening RICO liability without a genuine 9 intent to pursue such litigation in hundreds of instances, becoming the sole financial 10 beneficiary of the enterprise, sending baseless subpoenas, enforcing settlements 11 predicated on fraudulent conduct, and, at times, acting without the guidance or direction 12 of Outlaw to further the scheme. (ECF No. 114 at ¶¶ 68–71). And, in light of these 13 allegations, the Court finds once again that the Stores have plausibly alleged Tauler 14 Smith’s participation in a RICO scheme predicated upon mail fraud. It may be that the 15 Stores are unable to prove these claims after discovery, but that is not the issue here. The 16 Stores’ pleadings are adequate. 17 Consequently, Tauler Smith’s motion also fails on the merits. Contrary to Tauler 18 Smith’s arguments, (see generally ECF No. 225), this holding aligns with those of other 19 courts who have recognized a law firm’s potential liability for “cross[ing] the line 20 between traditional rendition of legal services and active participation in directing the 21 enterprise” and the RICO scheme. Handeen v. Lemaire, 112 F.3d 1339, 1349 (8th Cir. 22 1997); see also U.S. v. Eisen, 974 F.2d 246, 253 (2d Cir. 1992) (holding that an alleged 23 scheme by attorneys, private investigators, and office administrator to deprive civil 24 defendants and their liability insurers of money by means of fraudulently conducted 25 lawsuits was mail fraud); Navient Sols., LLC v. Law Offices of Jeffrey Lohman, No. L-19- 26 CV-461-LMB, 2020 WL 1917837, at *8 (E.D. Va. Apr. 20, 2020) (“LOJL also appears 27 to summarily argue that a civil RICO claim cannot be based on an attorney’s litigation 1 activity as a matter of law. This argument is without merit. There exists no broad shield 2 from RICO for attorney advocacy, including in the litigation context.”) (quotation 3 omitted); Kruse v. Repp, No. 4:19-CV-00106-SMR, 2020 WL 1317479, at *20 (S.D. 4 Iowa Mar. 20, 2020) (noting that attorney defendants furthered a RICO scheme in 5 creating an LLC); Garlock Sealing Techs., LLC v. Shein, No. 3:14-CV-137, 2015 WL 6 5155362, at *3 (W.D.N.C. Sept. 2, 2015) (“the Court agrees with Plaintiffs that there 7 exists no broad shield from RICO for attorney advocacy”) (quotation omitted); Lemelson 8 v. Wang Labs., Inc., 874 F. Supp. 430, 434 (D. Mass. 1994) (upholding a RICO claim 9 where plaintiff allegedly extorted millions of dollars in settlements through a pattern of 10 litigation involving infringement claims based on fraudulently obtained patents); Hall 11 Amer. Ctr. Assoc. L.P. v. Dick, 726 F. Supp. 1083, 1097 (E.D. Mich. 1989). 12 Lastly, Tauler Smith also mischaracterizes the Court’s May 29, 2020 Order. (ECF 13 No. 225 at 2, 5, 10; ECF No. 209.) There, in ruling on the Stores’ motion for judgment on 14 the pleadings, the Court did not understand the Stores to be challenging the UCL claim 15 on an “unfair” prong. (ECF No. 209 at 22 (“Plaintiff alleges that the Stores have violated 16 each prong of the UCL and the Stores move for judgment on the pleadings under the 17 ‘fraudulent’ and ‘unlawful’ prongs, only.”)) Consequently, the Court did not state that “at 18 least some of the Plaintiff’s claims are well founded” or “agree[] that claims brought by 19 [Tauler Smith] against various stores properly stated a claim for relief under the UCL.” 20 (ECF No. 225 at 2, 5.) The Order simply does not consider the “unfair” prong at all. In 21 addition, as the Court has yet to adjudicate the Stores’ motion for reconsideration of that 22 Order, it is also not true that Tauler Smith’s claims have “advanced past the pleading 23 stage.” (ECF No. 225 at 10.) 24 IV. Conclusion 25 As discussed here, a motion for reconsideration does not lead to a different 26 outcome where a party merely disagrees with the initial ruling. In addition, the only 27 binding discussed by Tauler Smith does not compel an outcome different to the Court’s 1 holding on April 23, 2020, especially under the high standard of “clear error.” Tauler 2 ||Smith’s other precedents likewise do not support creating a rule that would immunize 3 || attorneys from RICO suits where, as here, their conduct exceeds that of legal 4 ||representation. And, the Court’s own May 29, 2020 Order does not suggest otherwise. 5 For these reasons, Tauler Smith has failed to show that the Court’s April 23, 2020 6 || order was clearly erroneous or manifestly unjust. Accordingly, the motion for 7 reconsideration is DENIED. 8 IT IS SO ORDERED. 9 Dated: June 25, 2020
11 United States District Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28