Pacesetter Consulting LLC v. Kapreilian

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Pacesetter Consulting LLC, No. CV-19-00388-PHX-DWL

10 Plaintiff, ORDER

11 v.

12 Herbert A. Kapreilian, et al.,

13 Defendants. 14 15 In July 2021, the Court issued an order granting summary judgment against Plaintiff 16 Pacesetter Consulting LLC (“Pacesetter”) on all of its claims. (Doc. 280.) The summary 17 judgment motions had been filed by three different groups of defendants—(1) AgriCare 18 and Tom Avinelis (the “AgriCare Defendants”); (2) Eastside Packing Inc., Fruit World 19 Nursery Inc., Craig Kapreilian, and Herbert Kapreilian (together, the “Kapreilian 20 Defendants”); and (3) Mark Bassetti (“Bassetti”)—who sought summary judgment on 21 different, but sometimes overlapping, grounds. (Id.) Now pending before the Court are 22 motions for attorneys’ fees and costs by the Kapreilian Defendants (Doc. 292) and Bassetti 23 (Doc. 293). For the following reasons, both motions are denied. 24 BACKGROUND 25 The winding history of this case is set out in prior orders. (Docs. 128, 152, 160, 26 224, 235, 263, 280.) In a nutshell, in 2004, the Judson C. Ball Revocable Trust (the 27 “Trust”), by and through its trustee Judson C. Ball (“Ball”), invested in a mandarin orange 28 project run by Phoenix Orchard Group I, L.P. (“POG I”) and Phoenix Orchard Group II, 1 L.P. (“POG II”). (Doc. 280 at 1-2.) The Trust invested $200,000 in each entity. (Id.) 2 In 2015, the Trust brought a lawsuit in Maricopa County Superior Court against 3 POG I, POG II, and others, seeking rescission of the Trust’s interests in the orchard groups. 4 (Id. at 2.) In a March 2016 order, the state court determined that rescission was appropriate 5 and entered a declaratory judgment to that effect. (Id.) Although the Trust pursued tort 6 claims after the rescission, those claims ultimately failed. (Id. at 3.) 7 Separately, in January 2016, the Trust brought a derivative action in state court 8 against both orchard groups. (Id.) That action also failed because the rescission meant the 9 Trust no longer had standing to bring a derivative action. (Id.) 10 At some point after that, the Trust assigned all of its claims to Pacesetter. Pacesetter, 11 in turn, filed this action in January 2019. The ensuing litigation was filled with 12 procedurally irregular maneuvers by Pacesetter, which are discussed in more detail below. 13 In December 2020, after almost two years of litigation, all three groups of 14 defendants moved for summary judgment on Pacesetter’s claims. (Docs. 201, 202, 203.) 15 In July 2021, the Court granted all three motions. (Doc. 280.) As an initial matter, 16 the Court concluded that much of the evidence submitted by Pacesetter in opposition to the 17 motions was inadmissible. (Id. at 5-16.) In part because of that evidentiary determination, 18 the Court then concluded that summary judgment was warranted for three reasons. 19 The first reason was “Pacesetter’s failure to offer any cognizable evidence of 20 damages,” which was a ground on which both the AgriCare Defendants and Bassetti sought 21 summary judgment. (Id. at 22-30, 35-36.) As to that issue, the Court noted that “Pacesetter 22 disclosed one damages theory (i.e., ‘$63.2 million in lost profit/benefit-of-the-bargain 23 damages’) in its complaint and initial MIDP disclosures, then seemed to disavow that 24 theory during subsequent communications with the Court and opposing counsel, then 25 seemed to return to that theory in its expert report, then expressly disavowed that theory 26 for a second time during its Rule 30(b)(6) deposition.” (Id. at 25.) The Court further noted 27 that, “although Pacesetter’s Rule 30(b)(6) designee stated that Pacesetter’s expert 28 (McMullin) would be providing a different calculation, McMullin subsequently testified 1 that he wasn’t offering any opinion on damages.” (Id. at 25.) Given this backdrop, the 2 Court concluded that “there would be no point in holding a trial—Pacesetter cannot meet 3 its burden of proving damages.” (Id.) 4 The second reason was the application of the statute of limitations, which was a 5 ground on which both the AgriCare Defendants and the Kapreilian Defendants sought 6 summary judgment. (Id. at 30-34, 37-41.) Pacesetter sought to overcome the statute-of- 7 limitations defense by arguing it was entitled to delayed accrual of its claims pursuant to 8 the discovery rule, but the Court rejected this argument because “[t]he only pieces of 9 evidence on which Pacesetter relies to support application of the discovery rule . . . [have 10 been deemed] inadmissible and not properly before the Court.” (Id. at 33.) 11 The third reason was a general lack of admissible evidence to support Pacesetter’s 12 claims, which was a ground on which Bassetti sought summary judgment. (Id. at 36-37.) 13 As to that issue, the Court noted that “Bassetti met his initial Celotex burden of showing 14 that Pacesetter has no evidence to support its claims against him” and concluded, in part 15 because most of Pacesetter’s proffered evidence had been deemed inadmissible, that 16 Pacesetter had not proffered sufficient evidence to create a genuine issue of fact for trial. 17 (Id.) 18 On August 10, 2021, the Kapreilian Defendants and Bassetti filed motions for 19 attorneys’ fees and costs. (Docs. 292, 293.) 20 On August 24, 2021, Pacesetter filed responses. (Docs. 299, 300.) 21 On September 1, 2021, Bassetti filed a reply. (Doc. 306.) 22 On September 2, 2021, the Kapreilian Defendants filed a reply. (Doc. 307.)1 23 … 24 … 25 … 26 1 Bassetti requests oral argument (Docs. 293, 306), and Pacesetter requests an “in- 27 person hearing” if the Court were “poised to award sanctions” (Doc. 299 at 17), but these requests are denied because the Court is denying both motions and because the issues are 28 fully briefed and oral argument would not aid the Court’s decision. See Fed. R. Civ. P. 78(b); LRCiv 7.2(f). 1 DISCUSSION 2 I. The Kapreilian Defendants 3 The Kapreilian Defendants “seek actual attorney’s fees incurred in the total amount 4 of $177,341.97,” as well as “non-taxable costs[] in the total amount of $1,697.35.” (Doc. 5 292 at 4.) The Kapreilian Defendants identify three sources of authority for this request: 6 (1) A.R.S. § 12-341.01; (2) A.R.S. § 12-349; and (3) the Court’s inherent authority. (Id. 7 at 3-4.) Each is addressed below. 8 A. A.R.S. § 12-341.01 9 1. Legal Standard 10 A.R.S. § 12-341.01(A) provides that, “[i]n any contested action arising out of a 11 contract, express or implied, the court may award the successful party reasonable attorney 12 fees.” In other words, § 12-341.01 “permits a discretionary award to the successful party 13 in an action arising out of a contract.” Matter of Est. of Podgorski, 471 P.3d 693, 698 14 (Ariz. Ct. App. 2020). 15 “Generally, the words ‘arising out of a contract’ describe an action in which a 16 contract was the main factor causing the dispute.” Keystone Floor & More, LLC v. Ariz. 17 Registrar of Contractors, 219 P.3d 237, 240 (Ariz. Ct. App. 2009). See also In re Larry’s 18 Apartment, L.L.C., 249 F.3d 832, 836-37 (9th Cir. 2001) (“When the contract in question 19 is central to the issues of the case, it will suffice as a basis for a fee award.”); Caruthers v. 20 Underhill, 287 P.3d 807, 820 (Ariz. Ct. App. 2012) (“The contract must be the essential 21 basis of the action and not merely a factual predicate.”); Chaurasia v. Gen. Motors Corp., 22 126 P.3d 165, 173 (Ariz. Ct. App. 2006). (“The contract must have some causal connection 23 with the claim to justify an award of attorneys’ fees.”). “In determining whether an action 24 arises out of contract, the court is not bound by the form of the pleadings but looks to the 25 nature of the action and the surrounding circumstances.” Hiatt v. Shah, 364 P.3d 1138, 26 1143 (Ariz. Ct. App. 2015). Although “a trial court may award attorney fees under § 12- 27 341.01 to the successful party . . . on contract claims that are interwoven with tort claims,” 28 ML Servicing Co. v. Coles, 334 P.3d 745, 753 (Ariz. Ct. App. 2014), “[t]he existence of a 1 contract that merely puts the parties within tortious striking range of each other does not 2 convert ensuing torts into contract claims. Rather, a tort claim will ‘arise out of a contract’ 3 only when the tort could not exist ‘but for’ the breach or avoidance of contract.” Ramsey 4 Air Meds, L.L.C. v. Cutter Aviation, Inc., 6 P.3d 315, 320 (Ariz. Ct. App. 2000). 5 2. The Parties’ Arguments 6 The Kapreilian Defendants argue that A.R.S. § 12-341.01 applies here because 7 “collective conduct established an implied contract between” them and Pacesetter. (Doc. 8 292 at 3.) 9 Pacesetter responds that “this is not a contested action arising out [of] contract” 10 because “Pacesetter is not contesting the validity of any contract, but the fraud that induced 11 the original investment and the ongoing misrepresentations, fraudulent nondisclosures, 12 fraud, and fraudulent concealment that were jointly committed, aided, and abetted over 13 several years by all the Defendants.” (Doc. 300 at 2-4.) 14 The Kapreilian Defendants don’t address this issue in their reply. (Doc. 307.) 15 3. Analysis 16 Pacesetter has the better side of these arguments. Pacesetter’s claims against the 17 Kapreilian Defendants in this action were tort claims, not contract claims. Additionally, 18 the Kapreilian Defendants offer no support for their assertion that they had an implied 19 contract with Pacesetter and have not, at any rate, established that Pacesetter’s tort claims 20 arose out of that purported implied contract. Finally, even if the Kapreilian Defendants 21 had established these prerequisites to relief under § 12-341.01, they have not discussed any 22 of the factors that courts consider when deciding whether to exercise their discretion to 23 award fees under that statute. The Court thus denies the Kapreilian Defendants’ request 24 for fees under § 12-341.01. See, e.g., Ellis v. Johnston, 2009 WL 2450457, *3 (D. Ariz. 25 2009) (“Defendant fails to mention, let alone discuss, any of the . . . factors that this Court 26 must consider in deciding whether to exercise its discretion to award attorneys’ fees under 27 A.R.S. § 12-341. That in and of itself is reason enough for the Court to decline to grant 28 Defendant’s motion for attorneys’ fees.”). 1 B. A.R.S. § 12-349 2 A.R.S. § 12-349(A) provides as follows: 3 Except as otherwise provided by and not inconsistent with another statute, in any civil action commenced or appealed in a court of record in this state, the 4 court shall assess reasonable attorney fees, expenses and, at the court’s 5 discretion, double damages of not to exceed five thousand dollars against an attorney or party . . . if the attorney or party does any of the following: 6 1. Brings or defends a claim without substantial justification. 7 2. Brings or defends a claim solely or primarily for delay or 8 harassment. 9 3. Unreasonably expands or delays the proceeding. 10 4. Engages in abuse of discovery. 11 (Id.) 12 This statute requires little discussion. As Pacesetter correctly notes (Doc. 300 at 2), 13 the Ninth Circuit has held that § 12-349 cannot serve as the basis for an award of sanctions 14 by a federal court for litigation conduct occurring in federal court. Larry’s Apartment, 249 15 F.3d at 838-39 (reversing fee award imposed under § 12-349, “question[ing] . . . the 16 propriety of using an Arizona sanction statute in federal court,” and concluding that “when 17 fees are based upon misconduct by an attorney or party in the litigation itself, rather than 18 upon a matter of substantive law, the matter is procedural [under Erie]. . . . In other words, 19 the federal courts must be in control of their own proceedings and of the parties before 20 them, and it is almost apodictic that federal sanction law is the body of law to be considered 21 in that regard.”). See also R. Prasad Industries v. Flat Irons Env. Solutions Corp., 2014 22 WL 4722487, *12 (D. Ariz. 2014) (“The Court finds the Ninth Circuit’s analysis of the 23 issue in In re Larry’s Apartment both persuasive and binding on this District Court. 24 Therefore, the Court finds that A.R.S. § 12-349 is inapplicable here.”); Stilwell v. City of 25 Williams, 2014 WL 1654530 (D. Ariz. 2014) (“The Ninth Circuit has held that this state 26 law statute . . . does not apply to actions in federal court, even if the court is sitting in 27 diversity.”). 28 … 1 C. Inherent Authority 2 1. Legal Standard 3 “Federal courts possess certain ‘inherent powers,’ not conferred by rule or statute, 4 to manage their own affairs so as to achieve the orderly and expeditious disposition of 5 cases.” Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186 (2017) (internal 6 quotation marks omitted). These inherent powers include “the ability to fashion an 7 appropriate sanction for conduct which abuses the judicial process,” including “an 8 assessment of attorney’s fees . . . [against] a party that has acted in bad faith to reimburse 9 legal fees and costs incurred by the other side.” Id. (internal quotation marks omitted). 10 “[S]uch a sanction, when imposed pursuant to civil procedures, must be compensatory 11 rather than punitive in nature.” Id. “That means . . . the court can shift only those attorney’s 12 fees incurred because of the misconduct at issue. . . . [I]f an award extends further than 13 that—to fees that would have been incurred without the misconduct—then it crosses the 14 boundary from compensation to punishment. Hence the need for a court, when using its 15 inherent sanctioning authority . . . to establish a causal link—between the litigant’s 16 misbehavior and legal fees paid by the opposing party.” Id. 17 “In exceptional cases, the but-for standard even permits a trial court to shift all of a 18 party’s fees, from either the start or some midpoint of a suit, in one fell swoop.” Id. at 1187. 19 “If a plaintiff initiates a case in complete bad faith, so that every cost of defense is 20 attributable only to sanctioned behavior, the court may . . . make a blanket award.” Id. 21 at 1188. 22 2. Discussion 23 Although Pacesetter’s litigation conduct in this action has been troubling and 24 sometimes inexplicable, the Court nevertheless declines, in its discretion, to sanction 25 Pacesetter pursuant to its inherent authority. As an initial matter, it is unclear whether the 26 Kapreilian Defendants seek sanctions for all of Pacesetter’s conduct since the initiation of 27 this lawsuit or whether the sanction request is tied to specific instances of misconduct that 28 occurred during the litigation. (Compare Doc. 292 at 3 [“This federal case spanned almost 1 3 years and involved reams of defendants wrongfully haled into a federal case for time- 2 barred claims for which identical relief could have been previously sought in the original 3 State Court proceedings.”], with Doc. 292 at 5-6; Doc. 307 at 2-3 [mentioning several 4 instances of perceived misconduct].) Regardless, the Kapreilian Defendants’ request fails. 5 If the Kapreilian Defendants seek a “blanket award” for a case initiated in bad faith, they 6 have not established that this is the type of “exceptional case[]” for which a blanket award 7 would be appropriate. Although the Kapreilian Defendants correctly note that the Court 8 concluded at summary judgment that Pacesetter’s claims were time-barred, that conclusion 9 was based on Pacesetter’s failure to proffer admissible evidence that the discovery rule 10 applied to delay the accrual of its claims. Concluding that a party has failed to proffer 11 admissible evidence to support delayed accrual is not the same thing as concluding that 12 delayed accrual was categorically unavailable, much less that Pacesetter knew at the outset 13 of the case it would unable to rely on the discovery rule. 14 Alternatively, if the Kapreilian Defendants seek sanctions for specific instances of 15 misconduct by Pacesetter, the Kapreilian Defendants have failed to clearly identify which 16 specific instances of misconduct are sanctionable, why those instances qualify for sanctions 17 under the bad-faith standard, and why there is a causal link between the purported 18 misconduct and the legal fees incurred. Counsel’s time entries span from March 2019 to 19 July 2021 (Doc. 292-4) and do not appear to be linked to any specific instances of 20 misconduct, and the request for “actual attorney’s fees in the total amount of $177,341.97” 21 (Doc. 292 at 4) suggests the Kapreilian Defendants are seeking reimbursement for all of 22 the fees they incurred. 23 II. Bassetti 24 Bassetti “seeks a total sanctions award of $574,105.43 of attorney’s fees, excess 25 costs, and other expenses.” (Doc. 294 at 1.) Bassetti identifies three sources of authority 26 for this request: (1) 28 U.S.C. § 1927; (2) A.R.S. § 12-349; and (3) the Court’s inherent 27 authority. (Doc. 293 at 4.)2

28 2 Bassetti notes that he “omits discussion of Rule 11 or Rule 37 violations in the interests of page space, although much of Pacesetter’s conduct also likely violates one or 1 As discussed above, Bassetti is not entitled to fees under § 12-349.3 The Court thus 2 confines its analysis to whether Bassetti has established an entitlement to fees under 28 3 U.S.C. § 1927 and/or the Court’s inherent authority. 4 A. 28 U.S.C. § 1927 5 1. Legal Standard 6 Under 28 U.S.C. § 1927, “[a]ny attorney or other person admitted to conduct cases 7 in any court of the United States . . . who so multiplies the proceedings in any case 8 unreasonably and vexatiously may be required by the court to satisfy personally the excess 9 costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” As the 10 Ninth Circuit has recognized, “[t]he use of the word ‘may’ [in § 1927]—rather than ‘shall’ 11 or ‘must’—confers substantial leeway on the district court when imposing sanctions.” 12 Haynes v. City & County of San Francisco, 688 F.3d 984, 987 (9th Cir. 2012). 13 The Ninth Circuit’s cases are “less than a model of clarity” as to the applicable 14 liability standard under § 1927. B.K.B. v. Maui Police Dep’t, 276 F.3d 1091, 1107 (9th 15 Cir. 2002), as amended (Feb. 20, 2002). One held that “section 1927 sanctions must be 16 supported by a finding of subjective bad faith,” which “is present when an attorney 17 knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for the 18 purpose of harassing an opponent.” In re Keegan Mgmt. Co., Sec. Lit., 78 F.3d 431, 436 19 (9th Cir. 1996) (citations and internal quotation marks omitted). Another concluded that 20 both of these rules, as well.” (Doc. 293 at 4.) Because Bassetti does not develop any 21 request for sanctions premised on Rules 11 or 37, the Court declines to impose sanctions under those rules. Fed. R. Civ. P. 11(c)(1)-(2) (requiring that the subject of the request be 22 given “notice and a reasonable opportunity to respond” and that the movant “describe the specific conduct that allegedly violates Rule 11(b)”); Superior Performers, Inc. v. Speer, 23 2017 WL 10222369, *2 (M.D.N.C. 2017) (“Plaintiff did not develop its argument in favor of sanctions [under Rule 37] beyond making conclusory assertions, and the Court will 24 therefore not impose any sanctions.”) (citation omitted). 25 3 Bassetti acknowledges Larry’s Apartment but identifies two cases from this District in which courts awarded sanctions under § 12-349. (Doc. 293 at 14.) Bassetti notes that 26 he “does not want to lead this Court into error” but could not “reconcile the awards in these two cases against the apparent landscape of the law in this area and did not want to forego 27 a potentially viable path to sanctions in this instance.” (Id.) The Court appreciates Bassetti’s candor but concludes that Larry’s Apartment is controlling. Hart v. Massanari, 28 266 F.3d 1155, 1175 (9th Cir. 2001) (“A district court bound by circuit authority . . . has no choice but to follow it . . . .”). 1 “recklessness suffices for § 1927,” whereas “bad faith is required for sanctions under the 2 court’s inherent power.” Fink v. Gomez, 239 F.3d 989, 993 (9th Cir. 2001). And another 3 held that knowing about a rule and the applicable law and “recklessness in the face of such 4 undeniable knowledge” would be “sufficient to justify the imposition of § 1927 sanctions.” 5 Maui Police, 276 F.3d at 1106-07. In Maui Police, the Ninth Circuit added that because 6 counsel's argument was “frivolous inasmuch as it lacked credibility on its face,” § 1927 7 sanctions were justified “even under the Keegan standard.” Id. at 1107 n.8. 8 Finally, as for the amount of fees available under § 1927, the statute may be used to 9 “shift the entire financial burden of an action’s defense, including attorneys’ fees, if the 10 entire course of proceedings was unwarranted and should not have been commenced or 11 pursued.” Blixseth v. Yellowstone Mountain Club, LLC, 854 F.3d 626, 632 (9th Cir. 2017). 12 It does “not authorize recovery from a party or an employee, but only from an attorney or 13 otherwise admitted representative of a party.” FTC v. Alaska Land Leasing, Inc., 799 F.2d 14 507, 510 (9th Cir. 1996) (internal quotation marks omitted). 15 2. The Parties’ Arguments 16 Bassetti argues that “the state court litigation preceding this action meant that 17 Pacesetter’s attorneys could not have reasonably believed that they would, at any point, 18 prove all elements of their claim with any evidence[].” (Doc. 293 at 10-11.) Bassetti also 19 contends that Pacesetter’s counsel “repeatedly multiplied the already-frivolous litigation” 20 by engaging in various forms of litigation misconduct over the course of the case, 21 including: 22 ▪ “Misrepresenting that damages evidence would be forthcoming from the 23 commencement of the action through its conclusion and defending countless 24 meritless positions on filings throughout the case”; 25 ▪ “Employing a Shotgun Approach designed to impose maximum costs by 26 bringing nearly every possible motion or other filing at all times regardless 27 of the merit or likelihood that the results of such filing would be material and 28 relevant to the resolution of the motion overall”; 1 ▪ “[Trying] at least four times to have Daniel Duda returned as a Defendant in 2 this case without success because each attempt was frivolous and made with 3 reckless indifference to its lacking legal support,” “even [trying] to have Mr. 4 Duda returned to the case after they had added him as a Defendant to the 5 TAC, but fail[ing] to serve him”; 6 ▪ “[Filing] a frivolous and unsupported Motion for Remedies late in this action 7 seeking to add Daniel Duda again, which has no basis under the applicable 8 rules of procedure and which was denied as meritless”; 9 ▪ “[Filing] a baseless and meritless Motion for Sanctions against defense 10 counsel for Mr. Bassetti”; 11 ▪ “[Multiplying] the litigation” by filing a motion for summary judgment 12 against Duda; 13 ▪ “[Taking] depositions that were not used in the Response to Mr. Bassetti’s 14 Motion for Summary Judgment”; and 15 ▪ Requiring Bassetti to “brief a Rule 60 Motion that was withdrawn after the 16 Court asked Pacesetter to consider the many pending motions that were 17 unnecessary.” 18 (Id. at 11-12.) Finally, Bassetti emphasizes that “this Court spent significant amounts of 19 its own time recounting the serial frivolous filings emanating from [Pacesetter], and 20 eventually provid[ed] warnings and guidance to Pacesetter to help it correct its 21 misconduct.” (Id. at 3.) 22 Pacesetter responds that its counsel “did nothing in subjective bad faith.” (Doc. 299 23 at 4.) As for the specific instances of litigation misconduct alleged in Bassetti’s motion, 24 Pacesetter attempts to explain why the challenged conduct was reasonable. (Id. at 8-15.) 25 Finally, Pacesetter contends that Bassetti’s fee request must be denied for the additional 26 reasons that (1) the request includes fees that were incurred by various non-movants (i.e., 27 the Duda entities and Mr. Duda) and “Bassetti has not separated the fees, expenses, and 28 costs for him alone”; and (2) the attorneys against whom fees are sought did not even 1 appear in this case until September 2019 and June 2020, respectively. (Id. at 6, emphasis 2 omitted.) 3 In reply, Bassetti argues that, even though Pacesetter’s current counsel did not 4 appear until after this case was initiated, one of them “was involved in the State Court 5 litigation” and thus “knew or should have known of the lack of evidence of damages in the 6 State Court litigation.” (Doc. 306 at 5.) Bassetti also contends that the fees associated with 7 the Duda-related matters “benefited [him] and his Motion for Summary Judgment,” so 8 there is no basis for excluding those fees from his overall fee request. (Id.) Finally, Bassetti 9 responds to Pacesetter’s proffered justifications for the alleged instances of litigation 10 misconduct and argues that the justifications are unavailing. (Id. at 6-10.) 11 3. Analysis 12 Bassetti’s request to sanction Pacesetter’s counsel under § 1927, by holding counsel 13 responsible for the entirety of the fees expended by Bassetti’s counsel in this case, is 14 denied. 15 To be clear, the Court shares Bassetti’s disappointment with many of Pacesetter’s 16 counsel’s litigation tactics. It is clear that certain actions were meritless, procedurally 17 improper, and, at times, baseless. This disappointment should come as no surprise, as the 18 Court repeatedly expressed concerns about Pacesetter’s counsel’s tactics over the course 19 of this case.4

20 4 See, e.g., Doc. 65 at 2 (April 2019 order: “It is baffling to the Court that Plaintiff’s counsel would think it appropriate to file an emergency motion under these 21 circumstances.”); Doc. 124 at 17 (November 2019 tentative ruling: “The motion practice in this case has been chaotic. Moving forward, the Court urges the parties to carefully 22 consider whether any new motions are truly necessary. The Court also encourages the parties to refamiliarize themselves with the controlling authorities in this case, so that any 23 new arguments presented to the Court are grounded in law and fact and are not unsupported assertions or repeated misreadings.”); Doc. 140 (March 2020 order: “The Court has 24 preliminarily reviewed Plaintiff’s latest motion . . . [and] has serious concerns about the propriety of the procedural vehicle that Plaintiff has chosen.”); Doc. 142 (April 2020 order: 25 “The Court has reviewed Plaintiff’s recent filing . . . [and] is disinclined to go along with the first part of the filing, which appears to be a request for a telephonic conference so 26 Plaintiff can solicit legal advice concerning how to raise certain claims.”); Doc. 152 at 8 (July 2020 order: “Months ago, the Court encouraged ‘the parties to carefully consider 27 whether any new motions are truly necessary’ in light of the ‘chaotic’ nature of the motion practice in this case. Unfortunately, it seems that plea wasn’t taken to heart. Pacesetter’s 28 [current request] was unnecessary and needlessly wasted the parties’ and the Court’s time. Moreover, the inflammatory allegations that Pacesetter levied were unaccompanied by a 1 Nevertheless, Bassetti does not seek reimbursement for the fees associated with 2 responding to particular motions that were reckless or filed in bad faith. Instead, Bassetti 3 seeks to hold Pacesetter’s counsel (who had not even appeared in the case at the time of 4 some of the challenged filings) responsible for the entirety of the fees incurred over the 5 course of the litigation, based on the theory that counsel “knew or should have known” 6 from the moment they entered the case that all of the litigation conduct that preceded them 7 (as well as all of the litigation conduct that was to unfold in the future) was reckless or 8 undertaken in bad faith. Although this accusation has surface appeal—the sheer volume 9 of procedurally irregular and unsupported requests by Pacesetter’s counsel raises an 10 inference that the litigation, as a whole, was being pursued recklessly or in bad faith—the 11 Court cannot say that it fully persuaded. For example, although the summary judgment 12 order concluded that Pacesetter failed to meet its burden of establishing the fact of 13 damages, this ruling was based on Pacesetter’s evolving damages disclosures and, in the 14 Court’s view, Pacesetter’s ultimate disavowal of the damages theory it had disclosed. 15 Pacesetter did not agree that a disavowal had occurred and contested what it perceived as 16 the Court’s misreading of the expert’s deposition testimony. Although the Court disagreed 17 with Pacesetter’s reading of the deposition testimony, the Court does not find that this 18 clear request for relief.”); Doc. 160 at 12 (July 2020 order: “Pacesetter continues to take a 19 shotgun approach to this litigation while disregarding key procedural steps. This has caused its adversaries to expend considerable time and resources in fights over sideshow 20 issues not connected to the merits of the case.”); Doc. 190 [November 2020 order, denying Pacesetter’s “puzzling” deposition-related motion where Pacesetter made “no effort to 21 reconcile [a recent] ruling with the current request”); Doc. 207 (December 2020 order, noting that “the Court is unimpressed by Plaintiff’s inaccurate statements concerning the 22 meet-and-confer process”); Doc. 224 at 6 (January 2021 order: “[Pacesetter’s] request for reinstatement represents obvious, and unwarranted, overreach.”); Doc. 235 at 2 (February 23 2021 order: “Pacesetter’s motion is the latest in a string of frivolous, harassing tactics in this case. Not only has Pacesetter failed to establish that Kaprelian-Santos engaged in 24 misconduct during her deposition, but the proper remedy for such misconduct would not be to enter terminating sanctions . . . .”); Doc. 263 at 16 (June 2021 order, denying 25 Pacesetter’s motion for Rule 11 sanctions and noting that “Pacesetter has not remotely persuaded the Court that any sanctionable conduct has occurred”); Doc. 285 at 52-55 26 (transcript from July 2021 motion hearing, where the Court remarked that Pacesetter’s belated attempt to supplement the summary judgment record was “improper,” “violate[d]” 27 a court order, and was “puzzling,” surprising,” and “improper” and Pacesetter’s counsel responded by withdrawing the motion and explaining “[w]hen I was a young man in 28 Florida I used to go to Bible meetings, and there would be a moment where you would come to Jesus. And I’ve had that moment.”). 1 misreading, standing alone, establishes that counsel knew from the outset that Pacesetter 2 would never be able to prove damages. 3 For this and other reasons, doubts remain about what Pacesetter’s counsel’s “knew 4 or should have known” when they agreed to appear in this action. And given the presence 5 of such doubts, the Court chooses, in its discretion, to deny Bassetti’s fee request under 6 § 1927. Admittedly, this is not a fully satisfying outcome. Bassetti was forced to expend 7 more than a half-million dollars in defense of claims and motions that were often 8 perplexing and undeveloped. On the other hand, it must not be overlooked that “[t]he 9 district court’s authority to sanction attorneys under § 1927 . . . must be exercised with 10 restraint and discretion.” Lahiri v. Universal Music & Video Distrib. Corp., 606 F.3d 1216, 11 1223 (9th Cir. 2010). Here, considerations of restraint compel the resolution of close calls 12 and doubts in favor of Pacesetter’s counsel and against the imposition of sanctions. 13 B. Inherent Authority 14 1. Legal Standard 15 The legal standards governing a claim for sanctions pursuant to the Court’s inherent 16 authority are set forth in Part I.C.1 above. 17 2. The Parties’ Arguments 18 Bassetti seeks attorneys’ fees against Pacesetter under the Court’s inherent authority 19 because Pacesetter “brought this action after being put on full notice that [it] had no 20 remaining damages which were not derivative following the rescission of its investment in 21 the several years of litigation they engendered in state court before bringing their frivolous 22 action here.” (Doc. 293 at 6.) Bassetti argues that an award of attorneys’ fees for the entire 23 action—a blanket award—is proper because Pacesetter brought the action in bad faith from 24 the outset: “Each and every action was taken to defend the frivolous claims brought in bad 25 faith, where Pacesetter . . . knew that no damages existed and no evidence would be 26 presented of any damages which were not derivative to an investment which had already 27 been conclusively rescinded. . . . [N]o effort was ever made to determine any unique 28 damages that may have justified this action as separate from those which completely 1 overlapped with the prior state court action in which Mr. Ball suffered universal defeat.” 2 (Id. at 7.) Bassetti also argues that Ball and the Trust “created Pacesetter to try to 3 immediately and illicitly re-litigate the state court determination to harass different but 4 related defendants, and did so through assignment of claims and an LLC vehicle in the 5 hopes of insulating himself from any liability that might eventually arise from his bad faith 6 conduct.” (Id. at 8-9.) In a related vein, Bassetti argues that the corporate veil should be 7 pierced and fees should be assessed against Ball, his wife, and the Trust. (Id. at 10, 15-16.) 8 Pacesetter responds that “[n]either Pacesetter, no[r] Mr. Ball and his wife, nor 9 [counsel], have ever done anything in this case in bad faith” and their “sole goal from the 10 start was to uncover the facts and move this matter to a jury trial on its merits as fast as 11 possible.” (Doc. 299 at 3.) Pacesetter also argues that Ball cannot be personally liable for 12 attorneys’ fees because he is protected by A.R.S. § 29-3304(A), which provides, in relevant 13 part, that a “debt, obligation, or other liability of a limited liability company is solely the 14 debt, obligation or other liability of the company.” (Id. at 5.) 15 In reply, Bassetti disagrees that Ball is shielded from liability because he is the “only 16 member of Pacesetter,” “Pacesetter was formed days prior to the filing of the Complaint in 17 January 2019,” “Pacesetter has no source of revenue,” and Ball “pays the fees incurred by 18 Pacesetter for its attorneys.” (Doc. 306 at 4.) Bassetti reiterates that the litigation was 19 brought in bad faith because Pacesetter had no evidence of damages. (Id. at 9-10.) 20 3. Analysis 21 Bassetti’s request for sanctions pursuant to the Court’s inherent authority is, for 22 reasons similar to Bassetti’s request for § 1927 sanctions, denied. As the Supreme Court 23 has emphasized, courts may rely on their inherent authority to shift all of the fees incurred 24 over the course of a lawsuit only in “exceptional cases.” Goodyear Tire, 137 S. Ct. at 25 1186-97. Here, Bassetti has not adequately established that Pacesetter’s motivation for 26 bringing this lawsuit—as opposed to its motivation for some of the filings and procedural 27 steps it pursued during the course of the litigation—was rooted in bad faith. Although it is 28 possible that Pacesetter had such a motivation, Bassetti has not proved it with a sufficient degree of certainty. 2 As with the denial of Bassetti’s request for § 1927 sanctions, the Court does not || reach this conclusion without some hesitation. In particular, the formation and use of 4|| Pacesetter to pursue this litigation raises an inference of bad faith. Pacesetter does not dispute that the Trust, of which Ball is the trustee, assigned all of its claims to Pacesetter, 6 || an LLC in which Ball is the only member, just before bringing this lawsuit. The optics are || suspicious. Nor has Pacesetter attempted to explain why Ball formed the LLC and why it 8 || was used to pursue this lawsuit, which Ball presumably could have brought on behalf of 9|| the Trust, as he did in the state-court litigation. Bassetti argues that Ball formed Pacesetter || to avoid personal liability for filing a frivolous lawsuit, and this explanation seems |} plausible. Pacesetter’s response—that Ball is shielded from personal liability under the Arizona LLC Act—only seems to reinforce this inference. 13 Although the circumstances surrounding the LLC’s formation are troubling and raise serious questions about Ball’s motivation in bringing this lawsuit, the overall question 15 || of bad faith remains a close one. In the final analysis, the Court retains just enough doubt 16|| to exercise restraint and decline, in its discretion, to award sanctions. Chambers v. NASCO, □□ Inc., 501 U.S. 32, 44 (1991) (“Because of their very potency, inherent powers must be 18 || exercised with restraint and discretion.”). 19 Accordingly, 20 IT IS ORDERED that: 21 (1) The Kapreilian Defendants’ motion for attorneys’ fees and costs (Doc. 292) 22 is denied. 23 (2) Bassetti’s motion for attorneys’ fees and costs (Doc. 293) is denied. 24 Dated this 15th day of October, 2021. 25 26 Lom ee” 27 f _o—— Dominic W. Lanza 28 United States District Judge

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