Case Cannot Be Dismissed Based on Plaintiffs’ Sneakiness—Ninth Circuit
Judge Wright Declared That Order Had Been Violated;Panel, in Reversing, Says No Order Was Breached
By a MetNews Staff Writer
U.S. District Court Judge Otis D. Wright II of the Central District of California abused his discretion in dismissing an action based on a supposed violation by the plaintiffs of a court order in a previous action where no order was disobeyed, the Ninth U.S. Circuit Court of Appeals held yesterday, declaring that duplicity and conduct resembling a violation of an order does not suffice.
Wright found that Vahe Shahinian and his company, It’s My Seat, Inc. (“IMS”), ran afoul of Rule 41(b) of the Federal Rules of Civil Procedure, which says:
“If the plaintiff fails to…comply with…a court order, a defendant may move to dismiss the action or any claim against it.”
The plaintiffs initially brought their fraud action in Los Angeles Superior Court and the case—denominated in yesterday’s opinion as IMS I—was removed to the District Court. All of the eight defendants but one, Bryan Stein, were dismissed for failure to serve them.
Stein stipulated to a continuance of the trial on condition that the plaintiffs agreed not to seek to bring the dismissed defendants back into the action. Pursuant to the stipulation, Wright ordered the continuance.
Unbeknownst to Stein’s counsel, Marshall Fred Goldberg of the Woodland Hills firm of Glass and Goldberg, two weeks earlier, Shahinian and his company, It’s My Seat, Inc., brought a new fraud action against some of the dismissed defendants in Los Angeles Superior Court. That case, IMS II, also was removed to the District Court
Notice of settlement with Stein, the sole remaining defendant in IMS I, was filed on Sept. 18, 2022 and the action was subsequently dismissed with prejudice.
In his Aug. 17, 2022 order dismissing the action in IMS II, Wright said:
“Plaintiffs’ protestations aside, they misled Defendant Stein’s counsel. Mr. Goldberg, and this Court, when they obtained the stipulation and continuance in It’s My Seat I under false pretenses. Plaintiffs’ counsel had already filed It’s My Seat II against the dismissed defendants in state court when they represented to Mr. Goldberg that they would not seek to add the dismissed defendants back into the litigation.”
“Although, technically, Plaintiffs did not affirmatively violate an obligation in the stipulation. Plaintiffs’ counsel omitted from the negotiation and stipulation the material fact that they had already filed the second action. That material omission misled Mr. Goldberg—and the Court—regarding the intended nature of It’s My Seat I by implying that Plaintiffs planned to pursue their claims against only Stein. This was untrue. Plaintiffs’ argument that they cannot be held responsible for Mr. Goldberg’s misunderstanding of Plaintiffs’ promise is simply duplicitous.”
The judge went on to say:
“Alternatively, the Court dismisses this action because Plaintiffs have improperly split their claims by filing a second, duplicative action….
“Plaintiffs assert weakly that It’s My Seat II is not exactly duplicative of It’s My Seat I because they do not name all the dismissed defendants again and have asserted a RICO claim instead of a claim for breach of contract….But Plaintiffs cannot deny that the two actions arise out of the exact same transactional nucleus of facts and will require presentation of substantially the same evidence.”
Ninth Circuit Opinion
A three-judge panel said in a memorandum opinion:
“The district court abused its discretion in dismissing the case under Rule 41(b) because Plaintiffs never violated a court order….
“Here, neither the district court nor Defendants point to any court order that Plaintiffs violated.”
The judges reasoned:
“[T]he stipulated order memorialized only the agreement that, in exchange for a continued trial date, Plaintiffs would ‘not seek to reopen or extend any deadlines already expired....including, without limitation, the...deadline to hear any Motion to Amend Pleadings or Add Parties.’ The parties agreed only that Plaintiffs would not seek to re-add previously dismissed Defendants to IMS I. The stipulated order did not provide that Plaintiffs were somehow abandoning or voluntarily dismissing with prejudice then claims against the dismissed Defendants. Nor did Plaintiffs represent that they would not pursue additional litigation against parties that were dismissed without prejudice from IMS I. Accordingly. Plaintiffs never violated a court order in IMS because they never sought to re-add Defendants to that case. And because violation of a court order is needed to support a dismissal under Rule 41(b). the district court abused its discretion.”
The defendants’ claim-splitting contention was also rejected. The panel said:
“[T]his case and IMS I…involve different parties. Defendants in this case include entities and individuals who were not parties to IMS I at the time the district court dismissed this case. And the Defendants in this case were not in privity with the sole remaining Defendant in IMS I at the time of the district court’s order because their interests were not aligned….Accordingly, the ‘parties or privies’ in this case are not the same as in IMS I, so the doctrine against claim-splitting cannot support dismissal.”
Comprising the panel were Ninth Circuit Judges Mark J. Bennett and Susan P. Graber and Senior Circuit Judge Jay S. Bybee.
The case is It’s My Seat, Inc. v. Woodley, 22-55843.