Antitrust Law Daily Wrap Up, RICO—W.D. Tex.: Order denying sanctions for assertion of bad faith RICO claims not reconsidered, (Oct 6, 2015)

By Michael Menzhuber, J.D., LL.M.

The federal district court in Austin, Texas refused to reconsider an order denying sanctions against plaintiffs upon the dismissal of their Racketeer Influenced and Corrupt Organizations Act (RICO) claims, despite the defendant’s contentions that the claims were not warranted by existing law and their reassertion was indicative of bad faith. The court denied a motion to reconsider after determining that the defendant was not yet entitled to specific findings on the record regarding the plaintiffs’ and their counsel’s compliance with the good faith requirements of Federal Rule of Civil Procedure 11(b) because there had been no final adjudication of the case and the motion for reconsideration was untimely (Aubrey v. Barlin, October 5. 2015, Ezra, D.).

Background. Steven B. Aubrey and Brian E. Vodicka filed a complaint in state court against Peter E. Barlin and other defendants, alleging federal securities fraud and RICO claims. They eventually abandoned their state court action and filed suit in federal court.

In response, Barlin moved to dismiss the complaint on the basis that the RICO claims were barred by the Private Securities Litigation Reform Act (PSLRA), which prohibits civil RICO claims based on any conduct that would have been actionable as fraud in the purchase or sale of securities. At the hearing on Barlin’s motion, the plaintiffs were warned that their RICO claims were not likely to succeed and that they could face Rule 11 sanctions for pursuing baseless claims.

The plaintiffs subsequently abandoned their RICO claims and filed a second amended complaint, stating RICO claims, as well as violations of the Texas Securities Act, against the former defendants and a new defendant. While the complaint did not specify RICO claims against Barlin, his name was mentioned in several allegations supporting the RICO claims. The court dismissed the plaintiffs’ RICO claims as barred by the PSLRA. He also noted that, independent of the PSLRA bar, the RICO claims should be dismissed because the plaintiffs’ attempt to reassert the previously-abandoned claims at the latter stages of the proceedings was indicative of bad faith.

Barlin subsequently filed a motion for sanctions under the PSLRA, based on the plaintiffs’ assertion of their RICO claims. The court denied the motion and, sixteen months later, Barlin filed a motion for reconsideration.

Analysis. The PLSRA provides that the court shall include in the record specific findings regarding each party, and their attorneys’, compliance with Rule 11 and if the court makes a finding that any party or attorney violated Rule 11(b), sanctions will be imposed on the party, the court explained.

Barlin argued that the court had found two Rule 11 violations: (1) the dismissal of the plaintiffs’ RICO claims amounted to a finding that they were not “warranted by existing law”; and (2) their reassertion of their RICO claims were “indicative of bad faith.” Therefore, he was entitled to more specific findings on the record regarding the plaintiffs’ violations of Rule 11(b) and to attorneys’ fees and expenses incurred in responding to the plaintiffs’ RICO claims.

The court determined that Barlin was not yet entitled to specific findings on the record regarding the plaintiffs’ and their attorneys’ compliance with Rule 11(b) because the case file was still open, pending resolution of the case at trial, and, therefore, there had not been a final adjudication of the case.

The court also determined that Barlin’s motion for reconsideration was untimely. The court construed Barlin’s motion for reconsideration as a Federal Rule of Civil Procedure 60(b) motion for relief from a final judgment or order. Federal Rule of Civil Procedure 60(c) requires that Rule 60(b) motions be filed within a reasonable period of time. Because Barlin filed his motion for reconsideration sixteen months after the entry of the order from which he sought relief, the court found that he had not complied with the Rule 60(c) “reasonable period of time” requirement.

The case is No. 1:10-CV-076-DAE.

Attorneys: Brian Weil Zimmerman (Zimmerman, Axelrad, Meyer, Stern & Wise, PC) for Steven B. Aubrey. Dale L. Roberts (Fritz, Byrne, Head & Fitzpatrick, PLLC) for Peter E. Barlin.

Cases: RICO TexasNews