U.S.A. Dawgs, Inc. v. Crocs, Inc.

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
MAY 27 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
U.S.A. DAWGS, INC., No. 19-16296
Plaintiff-Appellant, D.C. No.
2:17-cv-02054-JCM-NJK
CHRISTOPHER HELLMICH,
Appellant, MEMORANDUM*
v.
CROCS, INC.; KIM LAWRIE; ERIK
RUFER; KELLY GRAY,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Nevada
James C. Mahan, District Judge, Presiding
Submitted October 9, 2020**
Portland, Oregon
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Before: PAEZ and RAWLINSON, Circuit Judges, and ANTOON,*** District
Judge.
U.S.A. Dawgs, Inc. and its attorney Christopher Hellmich (collectively,
Dawgs) appeal the district court’s order imposing sanctions against them under
Rule 11 of the Federal Rules of Civil Procedure (Rule 11). We review “all aspects
of a district court’s Rule 11 determination” for abuse of discretion. Cooter & Gell
v. Hartmarx Corp., 496 U.S. 384, 405 (1990); see also Retail Flooring Dealers of
Am., Inc. v. Beaulieu of Am., LLC, 339 F.3d 1146, 1150 (9th Cir. 2003). A district
court abuses its discretion when its ruling results from “an erroneous view of the
law” or “a clearly erroneous assessment of the evidence.” Cooter, 496 U.S. at 405;
see also Retail Flooring, 339 F.3d at 1150.
1. Rule 11 authorizes sanctions for pleadings “presented for any
improper purpose” or for claims not “warranted by existing law or by a
nonfrivolous argument for extending, modifying, or reversing existing law or for
establishing new law.” Fed. R. Civ. P. 11(b)(1), (2). The second prong covers
“frivolous” filings: “a shorthand that this court has used to denote a filing that is
both baseless and made without a reasonable and competent inquiry.” Townsend v.
Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1990), as amended Apr.
***
The Honorable John Antoon II, United States District Judge for the
Middle District of Florida, sitting by designation.
2
10, 1991. “District courts have broad fact-finding powers in this area to which
appellate courts must accord great deference. . . .” Id. at 1366 (citation omitted).
Here, the district court did not abuse its discretion in finding Dawgs’s claims
frivolous. Dawgs alleged that an employee of Crocs, Inc. (Crocs) illegally
accessed Dawgs’s confidential information regarding an upcoming sale of Dawgs’s
shoes on the online store, Zulily, where Crocs was scheduled to sell competing
shoes. Before Dawgs filed suit, however, Zulily explained to Dawgs, several
times, that such information was readily available to all vendors through the “New
Tomorrow” feature of the Zulily website and through other means. Zulily also
explained to Dawgs how it could confirm those facts. Thus, a reasonable inquiry
would have revealed that Crocs did not access Dawgs’s sales information through
illegal means. It was unreasonable for Dawgs to assume otherwise in light of
Zulily’s verifiable explanation and absent any evidence of duplicity.
The district court also acted within its discretion in finding that Dawgs
brought this lawsuit for an improper purpose: to gain leverage over another
lawsuit between Dawgs and Crocs in Colorado. In this case, Dawgs sent a letter to
Crocs, threatening a “dramatic increase in litigation costs” if the parties did not
reach a global settlement. Dawgs dismissed this action when no settlement was
reached. Importantly, “[a]lthough the ‘improper purpose’ and ‘frivolousness’
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inquiries are separate and distinct, they will often overlap since evidence bearing
on frivolousness or non-frivolousness will often be highly probative of purpose.”
Townsend, 929 F.2d at 1362.1 The frivolousness of Dawgs’s claims in this case
thus underscores the lawsuit’s improper purpose.
2. We reject Dawgs’s argument that Crocs did not mitigate damages by
providing exculpatory evidence–namely, proof that they did not illegally access
Dawgs’s information. Zulily presented Dawgs with the means by which to verify
Zulily’s explanation that Crocs did not engage in wrongdoing. The onus was not
on Crocs to provide exculpatory evidence or suffer a lawsuit; rather, it was on
Dawgs to conduct a competent inquiry into whether there was an objectionably
reasonable basis for its suspicions. See, e.g., Townsend, 929 F.2d at 1366.
3. We disagree with Dawgs’s contention that the district court calculated
the sanctions amount–$37,500 against Dawgs and $12,500 against Hellmich–by
improperly multiplying the amount another court sanctioned Dawgs in an unrelated
case by four. The district court did no such thing. Although the court mentioned
that the award was four times the previous award, that remark was merely an
observation. The district court actually arrived at the sanctions amount by
1
In light of this ruling, we need not address whether sanctions were
appropriate under 28 U.S.C. § 1927 or the district court’s inherent power.
4
significantly reducing Crocs’s requested award of $224,466.80 in attorneys’ fees
and $77,388.70 in costs.
AFFIRMED.
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