Son Ly v. Solin, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
________________________________
)
SON LY and VINH TRAN, )
)
Plaintiffs, )
) Case No. 12-CV-1004 (EGS)
v. )
)
SOLIN, INC., et al., )
)
Defendants. )
________________________________)

MEMORANDUM OPINION

This case is before the Court on defendants Kanlaya

Intavong’s and Paul Surachai’s joint motion to dismiss,

defendant Pichet Laosiri’s Motion to Dismiss, and defendant

Piwat Laosiri’s Motion to Dismiss. For the reasons explained

below, the motions will be GRANTED.

I. BACKGROUND

On June 19, 2012, plaintiffs filed a complaint against

seven defendants: Solin, Inc. (“Solin”), LPK, Inc. (“LPK”),

Kanlaya Intavong, Paul Surachai, Piwat Laosiri, Pichet Laosiri,

and Michael Strong. Plaintiffs brought various state law causes

of action against defendants, including breach of fiduciary

duty, breach of contract, embezzlement of corporate funds,

conspiracy to defraud, false misrepresentation, negligence, and

“piercing the corporate veil.” Plaintiffs also sought a

declaratory judgment.
 All of the individual plaintiffs and defendants are listed

in the complaint as having addresses in the State of Virginia.

The corporate defendants are incorporated in the District of

Columbia. In the jurisdictional allegations of the complaint,

plaintiffs stated that “This Court has jurisdiction due to the

parties [sic] are D.C. Corporations and all of the individual

parties are from different jurisdictions; Both companies are

registered to do business in D.C.; Mr. Tran has monetary

contributions of $653,649.00 in shares of two companies.”

Though the complaint contained no further allegations of

diversity, plaintiffs’ counsel indicated on the accompanying

Civil Cover Sheet that jurisdiction in this Court was based on

diversity jurisdiction. See ECF No. 1-2.

On July 5, 2012, plaintiffs filed an amended complaint to

include two counts under the Racketeer Influenced and Corrupt

Organizations Act, 18 U.S.C. § 1962(c) (“RICO”). Plaintiffs

allege that the defendant corporations Solin and LPK were

“enterprises” within the meaning of RICO, 18 U.S.C. § 1961(4).

Plaintiffs further allege that all individual defendants, who

were employed by or associated with the corporate “enterprises,”

engaged in a “pattern of racketeering activity” within the

meaning of 18 U.S.C. § 1961(5), in violation of 18 U.S.C. §

1962(c). Plaintiffs allege that the pattern of racketeering

activity included the fraudulent execution of a promissory note

2
for stock in the defendant corporations. Amend. Compl. ¶ 11.

In particular, plaintiffs state that defendant Kanlaya Intavong

“intentionally signed her name in the promissory note of selling

the stock to Vinh Tran as ‘Kanlaya Surachai’ knowing that Vinh

Tran did not know she was not married to Paul Surachai.” The

complaint further alleges that Intavong wrongfully denied that

the signature on the promissory note was not hers. Plaintiffs

allege that defendants “conduct their business in such a manner

constitutes [sic] a ‘pattern of racketeering activity’” within

the meaning of the RICO statute. This claim only alleges that

defendants caused harm to plaintiff Vinh Tran; no facts are

alleged as to plaintiff Son Ly.

In the second RICO count, plaintiffs allege that defendants

engaged in a conspiracy to engage in racketeering activity, in

violation of 18 U.S.C. § 1962(d). Plaintiffs allege that

defendants “engaged in numerous overt and predicate fraudulent

racketeering acts in furtherance of the conspiracy, including

material misrepresentations and omissions designed to defraud

plaintiffs of money.” Amend. Compl. ¶ 25. Specifically,

plaintiffs allege that Kanlaya Intavong and Paul Surachai “have

sought to and have engaged in the commission of and continue to

commit fraud in the sale of securities in violation of 18 U.S.C.

§ 1961(1)(D).” Amend. Compl. ¶ 27. It appears that this

reference is to the alleged stock transaction referred to in the

3
first RICO count. At the conclusion of the conspiracy claim,

plaintiffs add a seemingly unrelated allegation that Michael

Strong, an attorney for Intavong and Surachai, knowingly drafted

an unnamed agreement and induced Son Ly to sign that agreement

in bad faith and in furtherance of the RICO conspiracy. Amend.

Compl. ¶ 32. As a result of these alleged acts, plaintiffs

state that Vinh Tran lost “all of the money . . . he paid for .

. . 25% of the stocks in Solin, Inc. and LPK, Inc.” Amend.

Compl. ¶ 29.

Defendants filed several motions to dismiss, each alleging

that neither of the RICO counts stated a claim, that diversity

jurisdiction did not exist as to the remaining state law claims,

and that the Court should decline to exercise supplemental

jurisdiction over those remaining claims. See Def. Michael

Strong’s Mot. to Dismiss, ECF No. 20; Joint Mot. to Dismiss of

Kanlaya Intavong and Paul Surachai, ECF No. 22; Def. LPK, Inc.’s

Mot. to Dismiss, ECF No. 23; Def. Pichet Laosiri’s Mot. to

Dismiss, ECF No. 27; and Def. Piwat Laosiri’s Mot. to Dismiss,

ECF No. 28.

Pursuant to the request of the plaintiffs, the Court agreed

to a stay of 60 days to permit the parties to discuss

settlement. A settlement was not reached and plaintiffs were

directed to respond to the motions to dismiss by November 13,

2012. On that date, plaintiffs moved to voluntarily dismiss

4
without prejudice defendants LPK and Solin pursuant to Rule

41(a). Also on that date, plaintiffs responded to the motions

to dismiss filed by Surachai, Intavong, Piwat Laosiri, and

Pichet Laosiri. On November 20, 2012, the parties filed a

stipulation of dismissal with prejudice as to defendant Michael

Strong.

As a result of the voluntary dismissal of several

plaintiffs, only several motions remain before the Court:

defendants Kanlaya Intavong’s and Paul Surachai’s joint motion

to dismiss, defendant Pichet Laosiri’s Motion to Dismiss, and

defendant Piwat Laosiri’s Motion to Dismiss. Also before the

Court is former defendant LPK, Inc.’s opposition to plaintiffs’

voluntary dismissal of their claims against it, in which LPK,

Inc. requests the imposition of Rule 11 sanctions against

plaintiffs. LPK argues that plaintiffs’ complaint was brought

in bad faith and in violation of Rule 11 by alleging diversity

jurisdiction where none existed and by raising frivolous RICO

claims to establish federal subject matter jurisdiction.

II. STANDARD OF REVIEW

Federal district courts are courts of limited jurisdiction

and “possess only that power conferred by [the] Constitution and

[by] statute.” Logan v. Dep't of Veterans Affairs, 357 F. Supp.

2d 149, 152 (D.D.C. 2004) (quoting Kokkonen v. Guardian Life

Ins. Co. of Am., 511 U.S. 375, 377 (1994)). “There is a

5
presumption against federal court jurisdiction and the burden is

on the party asserting the jurisdiction, the plaintiff in this

case, to establish that the Court has subject matter

jurisdiction over the action.” Id. at 153 (citing McNutt v.

Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 182-83

(1936)). When it perceives that subject matter jurisdiction is

in question, the Court should address the issue sua sponte. See

Prunte v. Univ. Music Group, 484 F. Supp. 2d 32, 38 (D.D.C.

2007) (citing Doe by Fein v. District of Columbia, 93 F.3d 861,

871 (D.C. Cir. 1996) (noting that, because subject matter

jurisdiction “goes to the foundation of the court’s power to

resolve a case, [] the court is obliged to address it sua

sponte”)).

In a suit between private litigants, a plaintiff generally

demonstrates the existence of subject matter jurisdiction by

establishing federal question jurisdiction pursuant to 28 U.S.C.

§ 1331 or diversity jurisdiction pursuant to 28 U.S.C. § 1332.

“A plaintiff properly invokes § 1331 jurisdiction when [he]

pleads a colorable claim ‘arising under’ the Constitution or

laws of the United States.” Arbaugh v. Y&H Corp., 546 U.S. 500,

513 (2006) (citing Bell v. Hood, 327 U.S. 678, 681-85 (1946)).

Where the district court's jurisdiction is dependent solely on

the diversity of citizenship between the parties, there must be

“complete diversity,” meaning that no plaintiff may have the

6
same citizenship as any defendant. E.g., Owen Equip. & Erection

Co. v. Kroger, 437 U.S. 365, 373–74 (1978).

In assessing whether a complaint sufficiently alleges

subject matter jurisdiction, the Court accepts as true the

allegations of the complaint, see Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009), and liberally construes the pleadings such that

the plaintiff benefits from all inferences derived from the

facts alleged, Barr v. Clinton, 370 F.3d 1196, 1199 (D.C. Cir.

2004). However, “[a] pleading that offers labels and

conclusions or a formulaic recitation of the elements of a cause

of action will not do. Nor does a complaint suffice if it

tenders naked assertions devoid of further factual enhancement.”

Iqbal, 556 U.S. at 678 (internal citations, quotation marks and

brackets omitted). When the inquiry focuses on the Court's

power to hear the claim, “the Court may give the plaintiff's

factual allegations closer scrutiny and may consider materials

outside the pleadings.” Logan, 357 F. Supp. 2d at 153 (citing

Fed. R. Civ. P. 12(b)(1); Herbert v. Nat'l Academy of Scis., 974

F.2d 192, 197 (D.C. Cir. 1992); Grand Lodge of Fraternal Order

of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001)).

“A claim invoking federal-question jurisdiction under 28

U.S.C. § 1331 . . . may be dismissed for want of subject matter

jurisdiction if it is not colorable, i.e., if it is immaterial

and made solely for the purpose of obtaining jurisdiction or it

7
is wholly insubstantial and frivolous.” Arbaugh, 546 U.S. 500,

513 n. 10 (2006) (citations omitted); accord Tooley v.

Napolitano, 586 F.3d 1006, 1009 (D.C. Cir. 2009) (quoting Best

v. Kelly, 39 F.3d 328, 330 (D.C. Cir. 1994) (a complaint is

subject to dismissal on jurisdictional grounds when it is

“patently insubstantial,” presenting no federal question

suitable for decision); see Lyndonville Sav. Bank & Trust Co. v.

Lussier, 211 F.3d 697, 701 (2d Cir. 2000) (quoting Bell v. Hood,

327 U.S. 678, 682-83 (1946)).

III. DISCUSSION

The threshold issue before this Court is whether it has

subject matter jurisdiction over the plaintiffs’ claims. For

the reasons explained below, the Court concludes that it does

not, and will dismiss plaintiffs’ complaint.

A. Diversity Jurisdiction

As discussed above, plaintiffs initially indicated on the

civil cover sheet filed with their complaint that the Court has

diversity jurisdiction over this action, although plaintiffs did

not invoke 28 U.S.C. § 1332. In the complaint, plaintiffs

stated only that “[t]his Court has jurisdiction due to the

parties [sic] are D.C. Corporations and all of the individual

parties are from different jurisdictions; Both companies are

registered to do business in D.C.; Mr. Tran has monetary

contributions of $653,649.00 in shares of two companies.” This

8
jurisdictional allegation does not properly invoke diversity

jurisdiction.

Moreover, it appears from the face of the complaint that

diversity jurisdiction did not exist at the time the complaint

was filed, nor does it currently exist. Indeed, there is no

diversity whatsoever between any of the individual plaintiffs

and defendants, all of whom are described in the complaint as

having addresses in the State of Virginia. The corporate

defendants, who have since been voluntarily dismissed, are

incorporated in the District of Columbia. Their presence or

absence in the litigation has no effect on diversity

jurisdiction, however, since 28 U.S.C. § 1332 requires “complete

diversity” between the plaintiffs and defendants. See Owen

Equipment & Erection Co. v. Kroger, 437 U.S. 365, 373 (1978).

Because there are plaintiffs and defendants from the State of

Virginia, diversity jurisdiction does not exist in this action.

B. Federal Question Jurisdiction

Because diversity jurisdiction is not present in this case,

plaintiffs must establish that federal question jurisdiction

exists under 28 U.S.C. § 1331. See Arbaugh, 546 U.S. at 513 n.

10 (2006). “A plaintiff properly invokes § 1331 jurisdiction

when [he] pleads a colorable claim ‘arising under’ the

Constitution or laws of the United States.” Id. (citing Bell,

327 U.S. at 681-85). In this case, plaintiffs’ supplemental

9
RICO claims are the only claims brought under federal law and

are therefore the only basis under which federal question

jurisdiction could be properly invoked.

1. Count IX: Violation of RICO, 18 U.S.C. § 1962(c)

In order to state a claim for a violation of the RICO

statute, a plaintiff must allege the following elements: “(1)

conduct (2) of an enterprise (3) through a pattern (4) of

racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., 473 U.S.

479, 496 (1985). To show such a pattern, RICO requires at least

two predicate criminal racketeering acts over a ten-year period.

See 18 U.S.C. § 1961(5). The predicate acts must be among the

criminal acts listed in Section 1961(1). The Supreme Court has

further ruled that these predicate acts must show elements of

relatedness and continuity. See H.J. Inc. v. Northwestern Bell

Telephone Co., 492 U.S. 229, 239 (1989). In other words, a

plaintiff must show “that the racketeering predicates are

related, and that they amount to or pose a threat of continued

criminal activity.” Id. In determining whether this continuous

pattern is established, there are a number of factors to be

considered: “the number of unlawful acts, the length of time

over which the acts were committed, the similarity of the acts,

the number of victims, the number of perpetrators, and the

character of the unlawful activity . . . as they bear on the

separate questions of continuity and relatedness.” Edmondson &

10
Gallagher v. Alban Towers Tenants Ass’n, 48 F.3d 1260, 1265

(D.C. Cir. 1995).

Count IX of plaintiffs’ complaint wholly fails to set forth

a RICO claim under Section 1962(c). Plaintiffs have alleged

only one predicate act, though the statute requires at least

two. 1 See 18 U.S.C. § 1961(5). Having alleged only one act, it

is impossible for plaintiffs to establish the other required

elements of relatedness and continuity, nor did plaintiffs make

any attempt to do so. See H.J. Inc., 492 U.S. at 239; Edmondson

& Gallagher, 48 F.2d at 1265 (allegation of single scheme,

single injury, and few victims makes it virtually impossible for

plaintiffs to state a RICO claim). Plaintiffs have also failed

to allege a threat of continued criminal activity, since the

complaint refers only to one alleged past act. See H.J. Inc.,

492 U.S. at 239.

1
The Court notes without deciding that plaintiffs may have also
failed to allege a predicate act that falls within the purview
of RICO because plaintiffs allege that defendants committed
securities fraud. As argued in the motion to dismiss of
Surachai and Intavong, the Private Securities Litigation Reform
Act, 18 U.S.C. § 1964(c) exempted securities fraud from the list
of qualifying RICO predicate acts. Plaintiffs respond to this
argument by stating that the shares in LPK, Inc. and Solin, Inc.
are “not regulated by the 1933 Security [sic] Act and the 1934
Security [sic] Exchange Act.” Pls.’ Combined Opp. to Mots. to
Dismiss at 10. Because there is insufficient information in the
record for the Court to decide this issue and because
plaintiffs’ RICO claims fail for other reasons discussed herein,
the Court does not reach the issue of whether plaintiffs have
sufficiently alleged a predicate act under RICO.
11
 2. Count X: Conspiracy to Violate RICO, in violation of 18

U.S.C. § 1962(d)

Plaintiffs’ second RICO count fares no better than their

first. Count X alleges a conspiracy to violate Section 1962(c),

in violation of Section 1962(d). Section 1962(d) provides that

it is “unlawful for any person to conspire” to violate a

substantive RICO provision. To state a Section 1962(d)

conspiracy, the complaint must allege that (1) two or more

people agreed to commit a subsection (c) offense, and (2) a

defendant agreed to further that endeavor. RSM Construction

Corp. v. Freshfields Bruckhaus Deringer U.S. LLP, 682 F.3d 1043,

1047-48 (D.C. Cir. 2012).

In Count X, plaintiffs merely incorporate by reference

their allegations of a single-event RICO violation based on

alleged securities fraud committed by Intavong and Surachai. 2

For the reasons explained above, plaintiffs have failed to set

2
In this claim, plaintiffs also add an allegation of wrongdoing
as to Michael Strong, attorney for Intavong and Surachai.
Plaintiffs allege that Strong “knowingly drafted an agreement
and induced Mr. Ly to sign on [sic] the agreement. [Strong]
should not and could not in good faith to ask [sic] Mr. Ly to
sign the agreement of January 20, 2012. [Strong] also advised
Mr. Tran on two other occasions. [Strong’s] acts for the sake
of Solin and LPK, Intavong and Surachai constituted a RICO
violation.” Amend. Compl. ¶ 32. These allegations do not state
a claim for RICO for several reasons, including that they do not
set forth a predicate act, nor do they establish the elements of
relatedness and continuity. Accordingly, this allegation also
cannot set forth the basis for a RICO conspiracy. In any event,
all claims against Strong have been dismissed with prejudice and
are not properly before this Court. See ECF No. 35.
12
forth any claim for a RICO violation. Accordingly, they are

unable to establish that “two or more people agreed to commit a

[RICO violation],” which is necessary to state a claim for a

RICO conspiracy. Furthermore, other than plaintiffs’ conclusory

allegations, plaintiffs have not set forth any allegations that

any defendants agreed to further any such RICO conspiracy.

Accordingly, plaintiffs have failed to state a claim for a RICO

conspiracy against any of the defendants. See Edmondson &

Gallagher, 48 F.3d at 1265 (“Further, as the allegations provide

no basis for inferring any conspiracy broader than the alleged

scheme itself, the § 1962(d) claim fails as well; there is no

conspiracy to violate any of the provisions of subsection (c).”)

(internal quotation marks omitted).

3. Plaintiffs’ RICO Claims Fail to Invoke this Court’s Subject

matter Jurisdiction

The Court finds that plaintiffs’ RICO claims are subject to

dismissal for lack of subject matter jurisdiction. This is

plainly not a RICO case; rather, plaintiffs’ claims appear to

set forth, at most, a state-law business dispute falling

squarely within the jurisdiction of the District of Columbia

courts. Plaintiffs’ conclusory allegations of “racketeering”

are simply not colorable and do not present a federal question

for this Court’s decision. See Arbaugh, 546 U.S. at 513 n. 10

(2006) (“A claim invoking federal-question jurisdiction under 28

13
U.S.C. § 1331 . . . may be dismissed for want of subject matter

jurisdiction if it is not colorable, i.e., if it is immaterial

and made solely for the purpose of obtaining jurisdiction . . .

.”); accord Tooley, 586 F.3d at 1009 (quoting Best, 39 F.3d at

330 (a complaint is subject to dismissal on jurisdictional

grounds when it is “patently insubstantial,” presenting no

federal question suitable for decision)); Williams v. Aztar

Indiana Gaming Corp., 351 F.3d 294, 300 (7th Cir. 2003) (finding

that plaintiff’s RICO theory was “so feeble, so transparent an

attempt to move a state-law dispute to federal court . . . that

it [did] not arise under federal law at all”). Accordingly,

Counts IX and X of plaintiffs’ complaint are DISMISSED with

prejudice for lack of subject matter jurisdiction.

C. Supplemental Jurisdiction

In view of the Court’s dismissal of the federal claims, and

the lack of diversity jurisdiction in this matter, the Court

must determine whether to dismiss the remaining state law

claims. District courts are given supplemental jurisdiction

over state claims that “form part of the same case or

controversy” as federal claims over which they have original

jurisdiction. 28 U.S.C. § 1367(a). By the same token, they

“may decline to exercise supplemental jurisdiction over [such]

claim[s] . . . if . . . the district court has dismissed all

claims over which it has original jurisdiction.” § 1367(c)(3).

14
The decision of whether to exercise supplemental jurisdiction

where a court has dismissed all federal claims is left to the

court's discretion. United Mine Workers v. Gibbs, 383 U.S. 715,

726 (1966). When deciding whether to exercise supplemental

jurisdiction over state claims, federal courts should consider

“judicial economy, convenience and fairness to litigants.” Id.

Nonetheless, “in the usual case in which all federal-law claims

are eliminated before trial, the balance of factors to be

considered under the pendent jurisdiction doctrine—judicial

economy, convenience, fairness, and comity—will point toward

declining to exercise jurisdiction over the remaining state-law

claims.” Carnegie–Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.

7 (1988); see Edmondson & Gallagher, 48 F.3d at 1267.

Here the factors clearly weigh against retention of this

case. This Court has handled little in the case beyond the

current Motions to Dismiss and has not dealt at all with the

supplemental state claims. Compare Schuler v.

PricewaterhouseCoopers, LLP, 595 F.3d 370, 378 (D.C. Cir. 2010)

(finding that district court appropriately retained supplemental

jurisdiction over state claims where it had “invested time and

resources” in the case). Finally, Plaintiff will not be

prejudiced because 28 U.S.C. 1367(d) provides for a tolling of

the statute of limitations during the period the case was here

and for at least 30 days thereafter. See Shekoyan v. Sibley

15
Int’l, 409 F.3d 414, 419 (D.C. Cir. 2005) (finding that because

of this tolling, dismissal of the pendent state claims “will not

adversely impact plaintiff's ability to pursue his District of

Columbia claims in the local court system.”) (internal citation

omitted).

Accordingly, the remaining claims in this case will be

DISMISSED without prejudice.

D. Leave to Amend

In the concluding paragraph of their consolidated

opposition to defendants’ motions to dismiss, plaintiffs state

that “[i]f there is [sic] any RICO pleading deficiencies,

Plaintiffs should be given a chance to correct the deficiencies

by amendment.” Pls.’ Opp. to Defs.’ Mots. to Dismiss at 18, ECF

No. 34. Plaintiffs did not separately move for leave to amend,

nor did plaintiffs include a proposed amended complaint.

Under the Federal Rules of Civil Procedure, a party may

amend its pleadings once as a matter of course within a

prescribed time period. See Fed. R. Civ. P. 15(a)(1). When a

party seeks to amend its pleadings outside that time period or

for a second time, it may do so only with the opposing party's

written consent or the district court's leave. See Fed. R. Civ.

P. 15(a)(2). The decision whether to grant leave to amend a

complaint is entrusted to the sound discretion of the district

court, but leave “should be freely given unless there is a good

16
reason, such as futility, to the contrary.” Willoughby v.

Potomac Elec. Power Co., 100 F.3d 999, 1003 (D.C. Cir. 1996).

Because plaintiffs have already amended their pleadings once,

they may only do so with the consent of the plaintiffs or by

leave of the Court.

Under the Local Rules of this Court, a “motion for leave to

file an amended pleading shall be accompanied by an original of

the proposed pleading as amended.” Local Civ. R. 15.1.

Critically, a party seeking leave to amend must file a motion to

amend before a court can consider the issue. Confederate Mem.

Ass’n, Inc. v. Hines, 995 F.2d 295, 299 (D.C. Cir. 1993) (“[A]

bare request in opposition to a motion to dismiss[,] without any

indication of the particular grounds on which amendment is

sought . . . does not constitute a motion within the

contemplation of Rule 15(a).”).

Plaintiffs’ request to amend their RICO claims, made in

passing at the end of their opposition to defendants’ motions to

dismiss, will be denied. Plaintiffs failed to properly file a

motion for leave to amend and have made no indication to the

Court of the grounds for any such amendment. Rather, plaintiffs

are hedging their bets: they state that if the Court were to

find that there are deficiencies in plaintiffs’ RICO claims,

then plaintiffs will submit an amended complaint. This approach

not only violates the Local Rules but deprives the Court of the

17
ability to determine whether leave should be denied on grounds

of futility or otherwise. See Confederate Mem. Ass’n, Inc., 995

F.2d at 299. Accordingly, because plaintiffs have failed to

properly move for leave to amend and have failed to provide the

Court with their proposed amended claims, plaintiffs’ request

for leave to amend is DENIED.

E. Rule 11

On November 13, 2012, plaintiffs voluntarily dismissed

defendant LPK from this action. ECF No. 32. LPK had moved to

dismiss plaintiffs’ complaint and plaintiffs filed a notice of

voluntarily dismissal on the day that their opposition to LPK’s

motion would have been due. On November 28, 2012, LPK filed an

opposition to plaintiffs’ voluntary dismissal, arguing that

plaintiffs are subject to sanctions under Federal Rule of Civil

Procedure 11 because plaintiffs’ claims were brought in bad

faith.

“Rule 11 imposes a duty on attorneys to certify that they

have conducted a reasonable inquiry and have determined that any

papers filed with the court are well-grounded in fact, legally

tenable, and not interposed for any improper purpose.” Cooter &

Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990) (internal

quotation marks omitted). The rule's text provides, in relevant

part, that

18
 [b]y presenting to the court a pleading, written
motion, or other paper ... an attorney or
unrepresented party certifies that to the best of the
person's knowledge, information, and belief, formed
after an inquiry reasonable under the circumstances:
...

(2) the claims, defenses, and other legal contentions
are 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).

Rule 11 permits courts to award sanctions for violations of

Rule 11(b). See Fed. R. Civ. P. 11(c)(1) (“If, after notice and

a reasonable opportunity to respond, the court determines that

Rule 11(b) has been violated, the court may impose an

appropriate sanction on any attorney, law firm, or party that

violated the rule or is responsible for the violation.”). “‘The

test [for sanctions] under Rule 11 is an objective one: that is,

whether a reasonable inquiry would have revealed that there was

no basis in law or fact for the asserted claim. The Court must

also take into consideration that Rule 11 sanctions are a harsh

punishment, and what effect, if any, the alleged violations may

have had on judicial proceedings.’” Scruggs v. Getinge USA,

Inc., 258 F.R.D. 177, 180–81 (D.D.C. 2009) (quoting Sharp v.

Rosa Mexicano, D.C., LLC, 496 F. Supp. 2d 93, 100 (D.D.C.

2007)).

Rule 11 sets forth specific procedural requirements for a

party moving for sanctions. The motion “must be made separately

19
from any other motion and must describe the specific conduct

that allegedly violates Rule 11(b).” Fed. R. Civ. P. 11(c)(2).

The motion must be served on the nonmovant “but it must not be

filed or be presented to the court if the challenged paper,

claim, defense, contention, or denial is withdrawn or

appropriately corrected within 21 days. . . .” Id. Here, it

appears that LPK did not fully satisfy this requirement. In its

motion, LPK represents that “[l]etters were written and phone

calls were made that the corporations were not proper party

defendants. Indeed, more than 21 days after filing the Motion

to Dismiss, Plaintiffs refused to remove the offending

pleadings.” LPK’s Opp. to Pls.’ Voluntary Dismissal at 4, ECF

No. 38. This representation does not establish that LPK made a

separate motion, served it upon plaintiffs, and having received

no resolution of the Rule 11 issue within 21 days, filed the

motion with the Court.

Even though LPK’s motion fails to meet the requirements of

Rule 11, the Court itself has the authority to impose Rule 11

sanctions sua sponte. Fed. R. Civ. P. 11(c)(1)(B). This

inherent power, as the D.C. Circuit recognized, “guard[s]

against abuses of the judicial process.” Shepherd v. Am. Board.

Co., 62 F.3d 1469, 1472 (D.C. Cir. 1995). In this regard, Rule

11 serves the purpose of protecting the Court from “frivolous

and baseless filings that are not well grounded, legally

20
untenable, or brought with the purpose of vexatiously

multiplying the proceedings.” Cobell v. Norton, 211 F.R.D. 7,

10 (D.D.C. 2002) (quoting Cobell v. Norton, 157 F. Supp. 2d 82,

86 n. 8 (D.D.C. 2001)). If the Court determines that the motive

and intent of the offending party is to harass the other party,

or that a party has otherwise violated Rule 11(b), it has the

inherent power to consider a Rule 11 sanctions motion sua sponte

by issuing an order directing the offending party to show cause

why it has not violated Rule 11(b). Fed. R. Civ. P.

11(c)(1)(B). 3 Although the Court has found it lacks subject

matter jurisdiction over plaintiffs’ claims, the Court may

retain jurisdiction over the issue of Rule 11 sanctions. See

Willy v. Coastal Corp., 503 U.S. 131, 138-39 (1992). Likewise,

plaintiffs’ voluntary dismissal of certain claims against

certain defendants does not prevent the Court from considering

claims made against those defendants in connection with Rule 11

sanctions. See Cooter & Gell v. Hartmax Corp., 496 U.S. 384

(1990) (district court may enforce Rule 11 even after a

3
When exercising its discretion and imposing sanctions sua
sponte, the court is not required to provide a party with the
safe harbor period, as is required in Rule 11(c)(1)(A). Compare
Fed. R. Civ. P. 11(c)(1)(B) (containing no explicit safe harbor
provision) with Fed. R. Civ. P. 11(c)(1)(A) (containing an
explicit safe harbor provision); see, e .g., Elliot v. Tilton,
64 F.3d 213, 216 (5th Cir.1995) (distinguishing between the safe
harbor required when sanctions are requested by motion and the
absence of the safe harbor requirement when the court is acting
sua sponte).
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plaintiff files a notice of voluntary dismissal under Rule

41(a)(1)).

At this stage of the litigation, it appears to the Court

that plaintiffs failed to conduct the reasonable inquiry

required by Rule 11(b) when they sought to invoke the Court’s

subject matter jurisdiction. Although the common citizenship

between all individual plaintiffs and defendants was plain from

the face of the complaint, plaintiffs nonetheless sought to

invoke diversity of citizenship as the initial basis for the

Court’s subject matter jurisdiction. Counsel was obligated,

however, to make reasonable inquiry into the basis for diversity

jurisdiction. See Weisman v. Rivlin, 598 F. Supp. 724, 724

(D.D.C. 1984) (awarding sanctions and stating that counsel “had

an obligation to make a reasonable inquiry into the basis for

diversity. The Court finds that it was not reasonable to

overlook the citizenship of counsel’s own client . . . .”);

Rowland v. Fayed, 115 F.R.D. 605, 607 (D.D.C. 1987) (awarding

sanctions for filing of complaint invoking diversity

jurisdiction where no such jurisdiction existed and citizenship

of all parties was known to counsel when complaint was filed).

Complete diversity between the parties was so clearly lacking

that even the most cursory of legal inquiries would have

uncovered this error. See, e.g., Diversity of Citizenship, The

Free Legal Dictionary, http://legal-

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dictionary.thefreelegaldictionary.com/Diversity+Jurisdiction

(last visited December 17, 2012).

Although counsel’s meritless invocation of diversity

jurisdiction would have been enough to risk Rule 11 sanctions,

counsel compounded her initial error by subsequently amending

the complaint to add two wholly insubstantial civil RICO claims

in an effort to invoke federal question jurisdiction. The RICO

claims were not warranted by existing law or a “nonfrivolous

argument for extending, modifying, or reversing existing law or

establishing new law.” See Fed. R. Civ. P. 11(b)(2). It

appears to the Court at this time that the RICO claims were

frivolously filed solely to invoke the jurisdiction of this

Court and sanctions under Rule 11 may be warranted. See

Williams v. Aztar Indiana Gaming Corp., 351 F.3d 294, 300 (7th

Cir. 2003) (directing plaintiff to show cause why he should not

be sanctioned for frivolous RICO claim filed solely to invoke

federal court’s jurisdiction).

Because the issue of Rule 11 is being raised sua sponte by

this Court, sanctions will not be imposed at this time. Rather,

an Order will be issued contemporaneously herewith affording an

opportunity for counsel for plaintiffs to show cause why

sanctions pursuant to Rule 11 should not be issued.

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 IV. CONCLUSION

For the reasons explained above, the Court finds that it

lacks subject matter jurisdiction over this action.

Accordingly, Counts IX and X of the complaint are hereby

DISMISSED with prejudice; Counts I through IIX are DISMISSED

without prejudice; and leave to amend the complaint is hereby

DENIED. The Court will retain jurisdiction over the case solely

to resolve the issue of sanctions under Rule 11. An appropriate

Order accompanies this Memorandum Opinion.

Signed: Emmet G. Sullivan
United States District Judge
December 17, 2012

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