Young v. Young

Background

This dispute stems from a breakdown in the business relationship between Rick Belgarde — who served as CFO of Millwright Holdings LLC and whose company, CFO Rick Inc., provided financial and accounting services to Millwright — and Michael Young, the managing and majority member of Millwright. Young accused Belgarde and CFO Rick of misconduct and initiated an arbitration against them. CFO Rick filed this federal lawsuit seeking a declaration that it could not be compelled to arbitrate. The court ruled in CFO Rick's favor on that issue on February 17, 2026.

Unable to reach a stipulated resolution after the arbitration ruling, Young filed counterclaims on March 6, 2026, asserting claims on behalf of himself and/or Millwright for breach of contract, conversion, fraud, fraudulent concealment, unjust enrichment, violation of California Business & Professions Code § 17200, trade secret misappropriation, declaratory relief, and accounting/constructive trust. Young had expressed concern that these claims might be deemed compulsory counterclaims that would be waived if not asserted in this action.

The parties attempted but failed to agree on a stipulation for dismissal of the counterclaims. Young wanted language clarifying that dismissal would not bar him from asserting the claims elsewhere; CFO Rick would only agree to a dismissal "without prejudice" without additional protective language. The parties reached an impasse.

On March 30, 2026, CFO Rick sent Young a demand letter identifying alleged legal defects in the counterclaims — lack of complete diversity, lack of standing for Young to pursue derivative claims on behalf of Millwright, and failure of the federal Defend Trade Secrets Act claim — and demanded withdrawal within three days (by April 2, 2026). Young did not respond by that deadline. CFO Rick filed its motion to dismiss the counterclaims on April 8, 2026. After Young failed to file an opposition by the extended deadline of May 14, 2026, the court issued an order to show cause. Young did not respond, and the court dismissed the counterclaims on May 21, 2026, noting that dismissal was "with prejudice" only as to further pursuit of the counterclaims in this forum and that the court had not adjudicated their merits.

A final judgment was entered, and CFO Rick moved for attorney's fees under 28 U.S.C. § 1927 and the court's inherent authority.

Legal Standards

Section 1927 permits a court to require an attorney (not a client or law firm) who "unreasonably and vexatiously" multiplies proceedings to personally pay the excess costs and fees caused by that conduct. The Ninth Circuit requires a finding of subjective bad faith — present when an attorney knowingly or recklessly raises a frivolous argument or pursues a meritorious claim for the purpose of harassment. Mere bad judgment or well-intentioned zeal does not constitute bad faith.

Inherent authority sanctions likewise require a finding of bad faith. Mere recklessness alone is insufficient; recklessness must be combined with an additional factor such as frivolousness, harassment, or improper purpose. Any award under inherent authority is compensatory, not punitive, and limited to fees caused by the specific misconduct at issue.

Analysis

Fees for the Motion to Extend Time ($4,761)

The court denied this request. CFO Rick gave Young's attorney less than one day to agree to a time extension, even though CFO Rick's response to the counterclaims was not due for more than a week. The court noted that Young and his attorney promptly agreed to an extension the very day the court directed the parties to meet and confer — just one day after CFO Rick filed its motion. This conduct did not constitute vexatious multiplication of proceedings or bad faith.

Fees for the Motion to Dismiss Counterclaims ($17,215)

The court denied this request for two independent reasons.

First, CFO Rick gave Young only three days to respond to its demand letter raising multiple non-obvious legal questions (standing, supplemental jurisdiction, and trade secret law viability). The court found that vetting those issues reasonably required more than three days, particularly because CFO Rick's arguments were not obviously meritorious. The court noted that § 1927 sanctions are appropriate when it becomes obvious that litigation positions are meritless — a standard not met here, where, for example, if the counterclaims were compulsory, supplemental jurisdiction would exist.

Second, Young had a legitimate reason not to immediately withdraw the counterclaims: he was concerned that withdrawal might constitute forfeiture if the claims were deemed compulsory. CFO Rick's offer to dismiss "without prejudice" did not clearly address this concern. The court also found that Young's silence during the motion to dismiss was at least partially explained by complications in the parallel state court proceeding — the state court initially rejected Young's and Millwright's answer and cross-complaint around April 24, 2026, leading to default proceedings, and the state court did not grant them relief to file their cross-complaint until August 5, 2026. Given these circumstances, the court found Young's conduct did not rise to the level of bad faith.

"Fees on Fees" ($6,545)

Because the court denied fees on the underlying motions, the request for fees incurred in pursuing the fee motion was also denied.

Young's Cross-Request for Fees

Young requested fees for opposing CFO Rick's motion, asserting the request in his opposition brief. The court denied this request on both procedural grounds (an affirmative motion cannot be made in an opposition brief) and substantive grounds (CFO Rick's motion, while unsuccessful, was not entirely meritless).

Disposition

CFO Rick's motion for attorney's fees (Docket No. 55) was denied in its entirety.