Millennium Franchise Group, LLC v. Bank of America, N.A.

Background

Millennium Franchise Group, LLC alleged that Aric K. Perminter and Aric D. Perminter secretly opened a Bank of America account in Millennium’s name and directed clients to pay that account instead of an authorized JPMorgan Chase account. Millennium alleged that the defendants then wrote checks to themselves and took $87,657.65. Millennium brought claims including concealment, conversion, breach of contract, unjust enrichment, breach of fiduciary duty, constructive fraud, and negligence.

The action began in Alameda County Superior Court and was removed to federal court by Bank of America under the court’s diversity jurisdiction. Millennium later sought entry of default against Aric K. Perminter and Lynx Technologies Partners. The court entered defaults, but the parties later agreed that the defaults should be set aside and vacated.

Motion for sanctions

The defendants moved for sanctions under Federal Rule of Civil Procedure 11(b). They argued that Millennium had refused to withdraw or correct allegedly false statements in its amended complaint and had sought default based on improper service. They also argued that Millennium’s allegations were frivolous and that the lawsuit had been filed to extort money.

Alleged false statements

The defendants contended that Anthony Beaman knew about both the JPMorgan Chase and Bank of America accounts and knew that the Bank of America account was being used for Hacking Solutions’ clients and accounts. The court rejected sanctions on this basis. It reasoned that the central factual dispute was whether the Bank of America account had been opened secretly and that Aric K. Perminter’s affidavit conflicted with Millennium’s allegations but did not, by itself, justify sanctions.

The court found an arguable factual basis for Millennium’s allegation that Beaman did not know about the Bank of America account or that its funds were not being used to pay vendors. The court also found that Millennium’s attorney, Hubins, had conducted an objectively reasonable investigation before filing. Because the account was allegedly opened by the defendants, Hubins had limited access to information about it, but he reviewed available account applications, emails, and other correspondence.

The court therefore concluded that the amended complaint was not frivolous and that the attorney’s investigation was reasonable. It also rejected the defendants’ improper-purpose argument because the complaint was not frivolous and the defendants had not shown a persistent pattern of clearly abusive litigation activity.

Service and request for default

The defendants also argued that Millennium falsely represented that it had properly served Aric K. Perminter and Lynx and improperly sought default. The court found a genuine legal issue about whether service was proper and whether the defaults should be vacated. It concluded that Millennium had a reasonable basis to seek default because it genuinely believed service had been completed. The court also noted that the defaults had since been vacated.

Disposition

The court DENIES Defendants’ motion for sanctions. Judge Charles R. Breyer issued the order without oral argument.