2016-00199413-CU-PN

Wei Liu vs. U.S. Bank National Association

Nature of Proceeding: Motion for Terminating Sanctions

Filed By: Abbott, Thomas N.

Defendants’ Motion for Joint and Several Monetary Sanctions and Terminating Sanctions pursuant to California Code of Civil Procedure section 128.7, against Plaintiffs Wei Liu and Bin Xia, individually and Bin Xia as Guardian Ad Litem for Hayden Liu and Amberlin Liu, and their counsel, the United Law Center is GRANTED. C.C.P., sec. 128.7. Plaintiffs’ cross-request for imposition of sanctions is DENIED.

Notice of Motion

Defendants’ prior motion for sanctions under C.C.P., sec. 128.7 was denied by the Court on Jan. 11, 2018, as the Notice of Motion failed to give adequate notice that Defendants moved for an order imposing joint and several monetary sanctions against Plaintiffs Wei Liu and Bin Xia, individually and Bin Xia as Guardian Ad Litem for Hayden Liu and Amberlin Liu (collectively, “Liu” or plaintiffs), and their counsel, the United Law Center, pursuant to Code of Civil Procedure section 128.7, as required by subsection (c).

Defendants U.S. Bank N.A., Not In Its Individual Capacity, But Solely As Trustee For The RMAC Pass-Through Trust, Series 2011-D (“US Bank”); RMAC Trust Series 2012 -5 (“RMAC”); Rushmore Loan Management Services, LLC (“Rushmore”); and Dakota Asset Services, LLC (“Dakota”) (collectively, “Moving Defendants”) now move again for an order imposing joint and several monetary sanctions against Plaintiffs Wei Liu and Bin Xia, individually and Bin Xia as Guardian Ad Litem for Hayden Liu and Amberlin Liu (collectively, “Liu”), and their counsel, the United Law Center, pursuant to Code of Civil Procedure section 128.7. Additionally, Defendants move for non-

monetary sanctions in the form of dismissal of this lawsuit.

The Court finds that the Notice of Motion now provides sufficient “notice” to plaintiffs and their counsel as required by CCP 128.7 (c) which allows sanctions to be imposed “… after notice…”.

Arbitration Stay

Opposing party plaintiffs contend that this Court lacks authority to rule on this motion for sanctions, as the action as to moving defendants has been stayed, pending Court-ordered arbitration, following the trial as to the Security Pacific defendants.

On December 7, 2017 moving party Defendants U.S. Bank’s, RMAC; Rushmore and Dakota’s Petition to Compel Arbitration with plaintiffs was granted by this Court. At that time, pursuant to C.C.P., sec. 1281.2(c), the Court ordered the arbitration between plaintiffs and moving parties defendants is stayed until after the trial of the action as to the Security Pacific defendants.

This motion was filed on Feb. 9, 2018, two months after the stay of this action as between moving defendants and the plaintiffs took effect.

Plaintiffs contend in opposition, that as the action between these parties has been stayed, defendants’ motion for terminating and monetary sanctions against plaintiffs and their counsel for violation of C.C.P., sec. 128.7 (b), for filing a frivolous complaint for an improper purpose, is also stayed.

“Code of Civil Procedure section 1281.4 requires a court to stay an action submitted to arbitration pursuant to an agreement of the parties. Beyond that, the court’s role is fairly limited. Once a petition is granted and the lawsuit is stayed, ‘the action at law sits in the twilight zone of abatement with the trial court retaining merely vestigial jurisdiction over matters submitted to arbitration.’ (Brock v. Kaiser Foundation Hospitals (1992) 10 Cal. App. 4th 1790, 1796.) During that time, under its ‘vestigial’ jurisdiction, a court may: appoint arbitrators if the method selected by the parties fails (§ 1281.6); grant a provisional remedy ‘but only upon the ground that the award to which an applicant may be entitled may be rendered ineffectual without provisional relief’ (§ 1281.8, subd. (b)); and confirm, correct or vacate the arbitration award (§ 1285). Absent an agreement to withdraw the controversy from arbitration, however, no other judicial act is authorized. (Byerly v. Sale (1988) 204 Cal. App. 3d 1312,

1315.)” (Titan/Value Equities Group, Inc. v. Superior Court (1994) 29 Cal.App.4th 482,
487.)

In reply, moving defendants cite C.C.P., sec. 1281.2 for the proposition that : “If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies.”

Thus, the Legislature has granted the court jurisdiction to resolve collateral issues not subject to arbitration, and encourages such a determination, if it may make the arbitration unnecessary.

Here, whether plaintiffs violated C.C.P., sec. 128.7 is a collateral proceeding. In Day v. Collingwood (2006) 144 Cal.App.4th 1116, 1129, the appellate court found that the trial court erred in concluding that the motion for sanctions under C.C.P., sec. 128.7 was moot because it was filed after the trial court had entered a dispositive ruling on the merits of the action. Like the F.R.Civ.P., Rule 11 sanctions, it requires the determination of a collateral issue: whether the attorney has abused the judicial process, and, if so, what sanction would be appropriate. Such a determination may be made after the principal suit has been terminated.” (Id. at 1125.)

In Banks v. Hathaway, Perrett, Webster, Powers & Chrisman (2002) 97 Cal.App.4th 949, 951, where defendant filed and served both a C.C.P., sec. 128.7 motion to dismiss the action as frivolous and for monetary sanctions and a demurrer, the trial court concluded that once the demurrer was sustained, and a dismissal entered, it lacked jurisdiction to rule on the C.C.P., sec. 128.7 motion for sanctions. That ruling was held to be erroneous by the court of appeals. (Id. at 953.)

Similarly, in Eichenbaum v. Alon (2003) 106 Cal.App.4th 967, where plaintiff voluntarily dismissed the action, while the motion for sanctions under C.C.P., sec. 128.7 was under consideration by the Court, the court of appeal affirmed that the trial court was empowered to impose sanctions under section 128.7 after plaintiff dismissed the action with prejudice. (Id. at 974.)

This Court concludes that it does have jurisdiction to rule upon this motion, despite the stay pending arbitration.

Allegations of the Complaint

On August 25, 2016, Plaintiffs filed their unverified complaint alleging eight causes of action: the 1st for fraudulent concealment; conspiracy to commit fraudulent concealment; the 2nd for negligent misrepresentation; the 3rd for professional negligence – Civ. Code, sec. § 2079; the 4th for breach of fiduciary duty; the 5th for constructive fraud; the 6th for professional negligence – Bus. & Prof Code § 7196; the 7 th for breach of contract and the 8th for private nuisance – Civ. Code § 3479.

Defendants Rushmore Loan and Dakota Asset filed their Answer on October 24, 2016, asserting, inter alia, a 7th affirmative defense of waiver.

Defendants U.S. Bank and RMAC filed their Answer on Jan. 3, 2017 asserting, inter alia, a 7th affirmative defense of waiver.

Plaintiffs Liu entered into a written contract to purchase real property located at 2351 Pez Vels Place, in Gold River, from Seller US Bank, acting as Trustee.

On October 27, 2014, plaintiffs and Seller executed a Residential Purchase Agreement (“RPA”) for the property (Compl., Exh. H) together with Defendants’ Counteroffer/ Addendum (“C/A”) (Compl., Exh. I) wherein they agreed to the following waiver:

“Buyer waives any claims or losses relating to environmental conditions affecting the property, including but not limited to, mold…”

Liu initialed each page of the C/A, which also notified Liu that US Bank as Trustee

acquired the property as a result of foreclosure and “is not familiar with the condition of the property….” (Compl., Exh I, ¶ 11)

California courts have held that a general release can be completely enforceable and act as a complete bar to all claims (known or unknown at the time of the release) despite protestations by one of the parties that he did not intend to release certain types of claims. (San Diego Hospice v. County of San Diego (1995) 31 Cal.App.4th 1048, 1053.)

Plaintiffs here had ample notice of the environmental conditions before they signed the waiver. On Oct. 5, 2014, Liu inspected the property and noticed an odor, fogged windows and window tracks filled with black material. (Compl., ¶ 17.) On Oct. 6, 2014, Lui executed the RPA, which provided for 49 days before close of escrow.(Compl., ¶ ¶ 22, 50.) On Oct. 8, 2014, Liu received a pest clearance report prepared by HardRock Termite Control in July 2014, on behalf of Seller, disclosing excessive moisture damage. On Oct.15, 2014, Liu inspected the property a second time again noticed an odor, fogged windows and window tracks filled with black material. (Compl., ¶ ¶ 29-

30.) Plaintiffs sought to renegotiate the purchase price by requesting concessions from US Bank, based on their observations of the condition of the property after three separate on-site inspections. (Compl. ¶ 54) US Bank declined to lower the purchase price but agreed to a $5,000 credit to cover the cost of replacing the windows. (Compl. ¶ ¶ 54-55)

By signing an express waiver of all claims or losses relating to environmental conditions affecting the property, including mold, Plaintiffs Lui are barred from prosecution of this action for claims or losses due to mold.

Plaintiffs’ complaint admits that their own real estate agent and their own inspector confirmed that the black material plaintiffs had observed in the upstairs windows and tracks was actually mold. (Compl. ¶ 61)

Sanctions under C.C.P., sec. 128.7

Under C.C.P., sec. 128.7, an attorney or unrepresented party who files a pleading, motion, or similar paper must sign the document, which impliedly certifies the pleading has legal and factual merit. (§ 128.7, subd. (a).) The signature reflects the certification of the attorney or unrepresented party that the pleading is not being presented for an improper purpose; the legal contentions are warranted by law or nonfrivolous argument for extension, modification or reversal of existing law; the allegations and factual contentions have evidentiary support or are likely to have such support after a reasonable opportunity to further investigate; and the denials of factual contentions are warranted by the evidence. (C.C.P., sec. 128.7, subd. (b))

C.C.P., sec. 128.7 is modeled after F.R.Civ.P., Rule 11. Federal Rule 11, per 1993 Amendment Committee Notes, provides that “The court has available a variety of possible sanctions to impose for violations, such as striking the offending paper; issuing an admonition, reprimand, or censure; requiring participation in seminars or other educational programs; ordering a fine payable to the court; referring the matter to disciplinary authorities.” (See also, Weil & Brown (TRG 2017), California Civil Procedure Before Trial, sec. 9:1215.)

Since the language of Rule 11 of the Federal Rules of Civil Procedure is virtually

identical to that of section 128.7, federal case law construing revised Rule 11 is persuasive authority with regard to the meaning of section 128.7. (Cromwell v. Cummings (1998) 65 Cal. App. 4th Supp. 10, 14; Levy v. Blum (2001) 92 Cal.App.4th 625, 636.)

The Court finds that Defendants have complied with section 128.7(c)(1)’s “safe harbor” service requirement, by serving the original version of the motion on plaintiffs at least 21 days prior to filing this motion in Court, thus giving Liu and their counsel the required opportunity to withdraw this improper lawsuit. (Abbott Dec., para. 3).

The court may impose sanctions if a paper filed with the court is for an improper purpose, or if it is frivolous. (F.R.Civ.P., Rule 11(b)(1)-(2); Townsend v. Holman Consulting (9th Cir. 1990) 929 F.2d 1358, 1362 (en banc).) The standard governing both the “improper purpose” and “frivolous” inquiries is objective. (Id.) “[T]he subjective intent of the . . . movant to file a meritorious document is of no moment. The standard is reasonableness. The ‘reasonable man’ against which conduct is tested is a competent attorney admitted to practice before the district court.” Zaldivar v. City of Los Angeles, 780 F.2d 823, 830 (9th Cir. 1986).” (G.C. & K.B. Invs., Inc. v. Wilson (9th Cir. 2003) 326 F.3d 1096, 1109.)

In California a seller is not liable for “visible and observable” conditions where the parties contracted for the sale of the property in “as-is” condition. (Shapiro v. Hu (1986) 188 Cal.App. 3d 324, 332.) Here, there is no dispute that Liu is aware the plaintiffs waived “claims or losses” arising from mold, as they attached a copy to the complaint. (Compl., Ex. 1.) It is further not in dispute that Liu had multiple contingency periods during which they could cancel the transaction without penalty. (Compl., Ex. H.) And, Liu does not dispute having observed the mold on two occasions before signing the waiver and closing escrow. (Compl. ¶ ¶ 19, 27, 61.)

The record in this action therefore supports the finding that Liu filed this action for an improper purpose. Sanctions under section 128.7 are also warranted where a party’s “primary” purpose for bringing an action is “improper,” i.e., where the action is filed primarily to harass or to cause unnecessary delay or needlessly increase the cost of litigation. Cal. Civ. Proc. Code § 128.7(b)(1). Here, Liu signed the RPA and the C/A containing the waiver of claims. They also initialed each page of the C/A-objectively indicating that they read and understood the contents of the C/A including its waiver. They did so after having been notified of the moisture damage and after having observed the mold.

The Court finds that the complaint and the action against moving defendants is frivolous and brought for an improper purpose. The motion for imposition of sanctions, jointly and severally, against Plaintiffs Wei Liu and Bin Xia, individually and Bin Xia as Guardian Ad Litem for Hayden Liu and Amberlin Liu, and their counsel, the United Law Center, for violation of Code Civ. Proc., § 128.7(b) is granted.

The Court finds that the claims and other legal contentions in the Complaint against the moving defendants are not warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law. (Id.)

In the exercise of its discretion, the Court finds that the most meaningful sanction here is the nonmonetary sanction of striking the offending paper, the complaint, as against

moving defendants. Monetary sanctions in the amount of attorneys’ fees are also awarded.

Plaintiffs have been given notice and a reasonable opportunity to withdraw their complaint but have failed to do so. The Court determines that subdivision (b) has been violated, therefore the Court grants the motion for imposition of an appropriate monetary sanction, jointly and severally, upon the law firm and plaintiffs that are responsible for the violation and the dismissal of the action as to the moving defendants.

Plaintiffs’ cross-motion for imposition of monetary sanctions is denied.

The Court awards attorneys’ fees and costs $7,125.00, to moving counsel, representing reasonable attorneys’ fees shall be limited to fees incurred in the preparation of this motion and any other expenses incurred as a direct result of the violation. (C.C.P., sec. 128.7(c)(1), Eichenbaum v. Alon (2003) 106 Cal.App.4th 967, 977.) Sanctions to be paid jointly and severally by Plaintiffs Wei Liu and Bin Xia, individually and Bin Xia as Guardian Ad Litem for Hayden Liu and Amberlin Liu, and their counsel, the United Law Center.

The complaint against moving defendants U.S. Bank N.A., Not In Its Individual Capacity, But Solely As Trustee For The RMAC Pass-Through Trust, Series 2011-D (“US Bank”); RMAC Trust Series 2012-5 (“RMAC”); Rushmore Loan Management Services, LLC (“Rushmore”); and Dakota Asset Services, LLC (“Dakota”) (collectively, “Moving Defendants”) is DISMISSED.