Srinvasan v. Kenna
- Haywood Gilliam
- 4:18-cv-03977
- U.S. District Court · Northern District of California
- 4
In Srinvasan v. Kenna, Judge Gilliam denied both sanction motions because the record did not show counsel acted in bad faith or recklessly pursued frivolous claims.
The ruling affected Jered Kenna and the plaintiffs’ counsel in the two related cases: Kenna’s requests for sanctions were denied, and no sanctions were imposed against plaintiffs’ counsel.
What happened
In Srinvasan v. Kenna and the related Haas case, Jered Kenna asked the court to sanction the plaintiffs’ lawyer for pursuing what he called frivolous claims through multiple amended complaints.
The court said sanctions under federal law or its inherent authority required bad faith, such as knowingly or recklessly pursuing a frivolous claim, harassment, or an improper purpose. The court found that counsel likely misunderstood the need to plead facts supporting alter-ego liability after suing Kenna rather than Tradehill, but ignorance or negligence alone was not enough.
Judge Gilliam ruled that the record did not show bad faith, dishonesty, harassment, or knowingly reckless conduct and denied both motions for sanctions.
The detailed version
- Srinvasan v. Kenna · No. 4:18-cv-03977
- Haywood Gilliam
- Jan. 6, 2020
Background
Defendant Jered Kenna moved for sanctions in both related cases under 28 U.S.C. § 1927 and the court’s inherent powers. He based the motions on plaintiffs’ counsel’s alleged pursuit of frivolous claims through multiple amended pleadings.
The court had previously explained that plaintiffs needed to plead facts supporting alter-ego liability to hold Kenna responsible for acts or omissions of Tradehill, because the plaintiffs sued Tradehill’s chief executive officer rather than Tradehill itself. After the court dismissed the First Amended Complaint, plaintiffs filed a Second Amended Complaint that narrowed the state-law claims to conversion claims brought by all plaintiffs and a misrepresentation claim brought by Plaintiff Johnson alone. The plaintiffs nevertheless stated that they were not suing Tradehill or proceeding against Kenna on an alter-ego theory, and instead alleged that Kenna personally converted their bitcoin.
Legal standards
Section 1927 allows sanctions against an attorney who unreasonably and vexatiously multiplies proceedings. The court explained that this requires recklessness or bad faith, including knowingly or recklessly raising a frivolous argument or pursuing a meritorious claim to harass an opponent.
The court’s inherent power also permits sanctions, but only after a specific finding of bad faith. Mere recklessness is not enough under that standard; the conduct must include an additional factor such as frivolousness, harassment, or an improper purpose.
Analysis
The court found nothing in the record proving that plaintiffs’ counsel acted in bad faith or knowingly or recklessly raised a frivolous claim. It concluded that counsel likely was ignorant or negligent in failing to understand that alter-ego liability was a threshold issue, but stated that ignorance or negligence did not support sanctions under either § 1927 or the court’s inherent powers.
The court also found no evidence that counsel filed the Second Amended Complaint for a vexatious or dishonest reason. It distinguished cases in which sanctions were imposed because attorneys repeatedly pursued claims after clear adverse rulings or pursued allegations they knew lacked a factual or legal basis. The court noted that, after its clear explanation of the alter-ego issue, counsel did not seek to continue litigating the cases.
Ruling
Judge Haywood S. Gilliam, Jr. denied both of Kenna’s motions for sanctions. The court acknowledged that counsel could have saved time and resources by analyzing the alter-ego issue before filing the Second Amended Complaint, but held that the overall record did not justify sanctions.
Read the full 4-page opinion on CourtListener, the free public archive maintained by the Free Law Project.