Religious Technology v Gerbode
1994 U S LEXIS 6432 C. D. Ca  [1994]
Author:- Sam Biers

Relevant Facts: Pls are (RTC) and Dfs are David Mayo, Julie Mayo and the Church of the New Civilization. Pls allege that Dfs violated the Racketeer Influenced and Corrupt Organization Act (RICO), by engaging in acts of mail fraud and wire fraud in connection with the formation and operation of purportedly non-profit corporations. These corporations were sham entities, used only to fund prior litigation against RTC.  The amended complaint and the action were dismissed because the damages alleged in the three RICO claims were not proximately caused by the alleged predicate acts. Dfs now seek attorneys' fees from Pls and their attorneys Bowles et al in the amount of $80,030 for having to defend against this action.

Legal Issue(s): Whether sanctions should be imposed against Pls and/or counsel related to the filing of an amended complaint when reasonable inquiry would have disclosed the COA did fall under established or existing law?

Court’s Holding: Yes

Procedure: In this case, the court concludes that proceeding under either §§ 1927 or its inherent powers adds nothing to the outcome of the motion.Therefore, this motion shall be treated as a motion made under Rule 11.

Law or Rule(s):  By presenting to the court ... a pleading ... an attorney ... is certifying 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 or to cause unnecessary delay or needless increase in the cost of litigation; (2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.

Court Rationale:   It would not be practicable to require compliance w/ the safe harbor provision b/c the amended Rule 11 became effective on the same date that this action was dismissed.  No logical argument can support Pl’s contentions that the creation of fraudulent tax exempt organization to evade taxes proximately caused Pl’s injury in having to defend the litigation. The claims are frivolous.  A partial award is necessary b/c the case has been concluded by dismissal and other sanctions are unavailable.  B/C only partial fees are being awarded the ct also imposes a monetary penalty to be paid to the ct as an additional deterrent.  Rule 11 makes it discretionary w/ for the Ct to consider awarding atty fees to the prevailing party incurred in presenting or opposing the motion. The Ct finds these fees are warranted b/c of the long and acrimonious litigation involved.

 Plaintiff’s Argument: The motion for sanction under Rule 11 should not be considered b/c it was filed in violation of the “safe harbor,” provision of the amended rule. [provides that a motion for sanctions under the rule shall not be filed until 21 days after it is served on opposing counsel and the challenged paper "is not withdrawn or appropriately corrected."]

Defendant’s Argument: The claims presented were filed and presented for an improper purpose which were not warranted based on established or existing law.