State of CA v. Del Rosa ( 2024 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 State of California, No. 2:23-cv-00743-KJM-SCR 12 Plaintiffs, ORDER 13 Vv. 14 Phillip Del Rosa, et al., 1S Defendants. 16 17 In a previous order, this court held defendant Darren Rose in contempt for violations of 18 | the preliminary injunction in this action. See generally Prev. Order (Feb. 28, 2024), ECF No. 71. 19 | The court permitted California to seek sanctions “to ensure compliance with the court’s order,” 20 | including attorneys’ fees and costs. See id. at 7-8. California has now filed its request, which 21 | Rose opposes in part. See generally Mot., ECF No. 82; Opp’n, ECF No. 87. The state has 22 | replied, and the court took the matter under submission without hearing oral arguments. See 23 | generally Reply, ECF No. 91; Min. Order, ECF No. 92. 24 District courts have inherent power to enforce preliminary injunctions using contempt 25 | proceedings. N.L.R.B. v. SF. Typographical Union No. 21, Int'l Typographical Union, AFL- 26 | CIO, 465 F.2d 53, 56 (9th Cir. 1972). A court may use its civil contempt powers both “to coerce 27 | the defendant into compliance with the court’s order” and “to compensate the complainant for 28 | losses sustained.” Shell Offshore Inc. v. Greenpeace, Inc., 815 F.3d 623, 629 (9th Cir. 2016) 1 (quoting United States v. United Mine Workers of Am., 330 U.S. 258, 303–04 (1947)). “Where 2 compensation is intended, a fine is imposed, payable to the complainant. Such fine must of 3 course be based upon evidence of complainant’s actual loss, and his right, as a civil litigant, to the 4 compensatory fine is dependent upon the outcome of the basic controversy.” United Mine 5 Workers, 330 U.S. at 304 (footnotes omitted). 6 I. DISCUSSION 7 A. Unpaid Taxes and Fees. 8 California argues “Rose’s violations of the Court’s preliminary injunction directly injured 9 the State by depriving it of tax revenue.” Mot. at 4. It contends “[e]ach of Azuma’s cigarette 10 distributions is taxable, and the continued distribution of millions of cigarettes each month under 11 Rose’s direction in violation of the Court’s order has deprived the State of millions of dollars.” 12 Id. The state similarly argues Rose’s sales “deprived the State of escrow fees owed” in 13 connection with a state law related to the “landmark” 1998 Master Settlement Agreement with 14 many cigarette manufacturers. See id. at 5–6 & n.1 (citing Cal. Health & Safety Code 15 § 104555(d)). 16 The court denies the state’s request for sanctions based on these theories of harm. 17 Ordering Rose to pay taxes and fees now would, in effect, award damages to the state 18 prematurely. California has not proved any defendant is actually liable; it has proved only that it 19 is likely to prevail. If the state ultimately proves its claims, it may then seek to recover any 20 unpaid tax revenues or escrow fees, and that recovery could potentially include taxes losses while 21 the preliminary injunction remained in effect. The state also could request and prove it is entitled 22 to interest given the passage of time since the violations in question. But the court does not reach 23 these questions now. 24 B. Attorneys’ Fees and Costs. 25 California requests an award of attorneys’ fees in connection with its efforts to obtain 26 Rose’s compliance with the preliminary injunction. “[I]n civil contempt actions, ‘a court may 27 assess attorneys’ fees as part of the fine to be levied on the defendant.’” Donovan v. Burlington 28 N., Inc., 781 F.2d 680, 682 (9th Cir. 1986) (other alterations and emphasis omitted) (quoting 1 Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 258 (1975)). Courts use the 2 “lodestar” method to calculate a reasonable award in cases of a litigant’s civil contempt. See, 3 e.g., MetaQuotes Ltd. v. MetaQuotes Software Corp., No. 22-00462, 2023 WL 3432157, at *1 4 (C.D. Cal. Jan. 30, 2023) (citing Innovation Ventures, LLC v. Distrib., Inc., No. 12-00717, 5 2015 WL 5319815, at *2 (C.D. Cal. Apr. 29, 2015)). “The ‘lodestar’ is calculated by 6 multiplying the number of hours reasonably expended on the litigation by a reasonable hourly 7 rate, resulting in a figure that is ‘presumptively reasonable.’” Id. (quoting Morales v. City of San 8 Rafael, 96 F.3d 359, 363 (9th Cir. 1996)). The court may then adjust the lodestar award upward 9 or downward to account for the circumstances of the case and representation. See id. 10 The state’s request is based on time spent by four attorneys on its motion seeking to hold 11 Rose in contempt.1 First, James V. Hart, an attorney with 19 years’ experience, spent 2.5 hours, 12 and the state requests an hourly rate of $545. Second, David C. Goodwin, an attorney with 11 13 years’ experience, spent 30.5 hours, and the state requests an hourly rate of $475. Third, Byron 14 M. Miller, an attorney with 12 years’ experience, spent 3 hours, and the state requests an hourly 15 rate of $475. And fourth, Peter F. Nascenzi, an attorney with 7 years’ experience, spent 45.25 16 hours, and the state requests an hourly rate of $475. See Mot. at 8; Hart Decl. at 3–4. The state 17 submitted detailed billing records in support of its motion. See Hart Decl. Ex. A, ECF No. 82-2. 18 Rose does not dispute that these hourly rates are reasonable in the Sacramento market. 19 See Opp’n at 12–13. The court finds they are reasonable for a Sacramento-area case of this type 20 and complexity. See, e.g., Goodson v. Cnty. of Plumas, No. 18-03105, 2024 WL 99847, at *3 21 (E.D. Cal. Jan. 9, 2024) (collecting reasonable rates); Mostajo v. Nationwide Mut. Ins. Co., No. 22 17-00350, 2023 WL 2918657, at *11 (E.D. Cal. Apr. 12, 2023) (same). Nor does Rose identify 23 any duplicative, wasteful or otherwise objectionable tasks in the state’s records documenting the 1 These attorneys are Deputy Attorneys General employed by the California Attorney General’s Office. See Hart Decl. ¶ 3, ECF No. 82-2. They do not claim to charge hourly rates to paying clients as such, but the parties have expressed no doubts that analogous hourly rates charged by attorneys in private practice within this district are a rational starting point for calculating a reasonable fee award. Cf. id. at 5 (reporting research into hourly rates charged in other cases by private counsel cases). The court also finds that comparison is appropriate. 1 attorneys’ work. The court has reviewed the records and finds counsel dedicated a reasonable 2 number of hours to obtaining Rose’s compliance with the preliminary injunction. 3 Rose contends the state’s fee request is “inflated” because “only a fraction of the fees 4 claimed in this motion are compensatory.” Opp’n at 12. By his reasoning, the state’s fee request 5 is “punitive” rather than “compensatory” because the state has “failed to support its claims for 6 lost excise tax revenue and escrow fees.” Id. at 13. As the state correctly points out, however, its 7 fee request is tied to its attempt to obtain Rose’s compliance with the preliminary injunction, not 8 its current request for fees and sanctions. See Reply at 5. The requested fee award is 9 compensatory, not punitive. 10 The state does not request an adjustment to the lodestar award, and the court finds none is 11 necessary to ensure the award is reasonable. The court grants the state’s motion for an award of 12 $40,668.75 in attorneys’ fees. 13 C. Prospective Sanctions. 14 The state also requests prospective monetary and nonmonetary sanctions to ensure Rose 15 remains in compliance with the preliminary injunction. First, the state requests contingent 16 monetary sanctions: $10,000 for the first day of any future noncompliance, $12,000 for the 17 second day, and so forth, reaching $18,000 on the fifth day. See Mot. at 9. On the sixth day of 18 noncompliance, however, the state proposes imprisonment. See id. The state also requests an 19 order directing Rose to submit either (1) monthly “PACT Act reports that confirm with the 20 requirements of 15 U.S.C. § 376(a)” or (2) “a declaration under penalty of perjury that Azuma 21 made no cigarette deliveries.” Id. at 10. Finally, the state also requests an order directing Rose to 22 “retain for inspection by the State all of Azuma’s purchase records, sales, and invoices dated after 23 the injunction came into effect on September 15, 2023.” Id. 24 Courts may employ coercive sanctions to deter future violations of their orders. Shell, 25 815 F.3d at 629. These sanctions “generally take the form of conditional fines.” Id. They “may 26 only be imposed ‘after a reasoned consideration’ of ‘the character and magnitude of the harm 27 threatened by the continued contumacy, and the probable effectiveness of any suggested sanction 28 in bringing about the result desired.’” Parsons v. Ryan, 949 F.3d 443, 457 (9th Cir. 2020) 1 (quoting Shuffler v. Heritage Bank, 720 F.2d 1141, 1148 (9th Cir. 1983)). The court also does 2 have the power to confine a contemnor until that person complies. See Int'l Union, United Mine 3 Workers of Am. v. Bagwell, 512 U.S. 821, 828 (1994). 4 Rose does not oppose the state’s request for the prospective or conditional sanctions 5 above, which the court agrees are reasonable measures to ensure compliance with the preliminary 6 injunction. The reporting and recordkeeping requirements will help ensure full compliance with 7 the preliminary injunction and will impose no onerous burdens. The conditional monetary and 8 nonmonetary sanctions are necessary to reduce incentives to otherwise not comply; the court 9 expects no conditional sanction will be imposed, but if a sanction is necessary, it will be as only a 10 “short-lived tool,” Parsons, 949 F.3d at 457 (citation omitted), which the court would only 11 impose after Rose has an opportunity to be heard, as specified in the conclusion of this order. 12 II. CONCLUSION 13 The State’s motion for sanctions is granted in part and denied in part as follows: 14 1. The request for unpaid excise taxes and escrow fees is denied. 15 2. The request for $40,668.75 in attorneys’ fees is granted, to be paid within seven 16 days from the filed date of this order. 17 3. While the preliminary injunction is in place or until a further order of this court, 18 Rose shall file on the docket of this action either (1) PACT Act reports that 19 confirm with the requirements of 15 U.S.C. § 376(a) or (2) a declaration under 20 penalty of perjury that Azuma made no cigarette deliveries, and in either event 21 shall do so for each month beginning with February 2024 no later than the tenth 22 day of the following calendar month. 23 4. While the preliminary injunction is in place or until a further order of this court, 24 Rose shall retain for inspection by the State all of Azuma’s purchase records, sales, 25 and invoices dated after the injunction came into effect on September 15, 2023. 26 5. Any future noncompliance with the preliminary injunction or the nonmonetary 27 sanctions above will result in the following further sanctions: $10,000 for the first 28 day of noncompliance, $12,000 for the second day of noncompliance, $14,000 for 1 the third day of noncompliance, $16,000 for the fourth day of noncompliance, and 2 $16,000 for the fifth day of noncompliance. Noncompliance beyond the sixth day 3 may result in a custodial sanction. 4 6. The court will not impose any sanction under paragraph 5 above unless the state 5 files a notice of violation on the docket of this action, supported by a declaration of 6 a person with knowledge of the violation. The court will then promptly set a 7 hearing on an order to show cause why additional sanctions should not be imposed 8 under this order. 9 This order resolves ECF No. 82. 10 IT IS SO ORDERED. 11 DATED: November 15, 2024.