Commercial Litigation and Arbitration

§ 1447(c) Sanctions: No Bad Faith Required; Abuse of Discretion Review — Evidence on Sanctions Motions: Rule 408 Does Not Bar Consideration of Settlement Discussions to Prove Bad Faith in Connection with a Sanctions Proceeding (Here, Relevant to Size of Sanctions Award) — Adequate Opportunity to Be Heard Afforded by Allowing Supplemental Briefing

Powell v. Healy, 2022 U.S. App. LEXIS 25776, 2022 WL 4181717 (9th Cir. Sept. 13, 2022) (unpublished):


*1 Plaintiff-Appellee Charlie A. Powell, a Tennessee hip hop artist manager, filed a breach of contract action in Tennessee state court against Defendants-Appellants Ethan Healy, a California hip hop recording artist, and Braintrust Records, LLC, a Florida limited liability company owned by Powell and Healy. Defendants-Appellants appeal the district court’s orders imposing sanctions in the amount of attorneys’ fees and costs incurred as a result of the Defendants-Appellants’ improper removal of the breach of contract action to the district court under 28 U.S.C. § 1447(c). We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

A district court’s award of attorneys’ fees pursuant to 28 U.S.C. § 1447(c), denial of a motion to reconsider, and denial of a motion to strike are reviewed for an abuse of discretion. Balcorta v. Twentieth Century-Fox Film Corp., 208 F.3d 1102, 1105 (9th Cir. 2000) (award of attorneys’ fees); Do Sung Uhm v. Humana, Inc., 620 F.3d 1134, 1140 (9th Cir. 2010) (motion for reconsideration); Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2000) (motion to strike).

  1. Defendants-Appellants first assert the district court abused its discretion by awarding attorneys’ fees because the district court failed to make a specific finding that the Appellants-Defendants acted in bad faith. Defendants-Appellants insist they had an objectively reasonable basis for removing a breach of contract action from Tennessee state court to the California federal district court.

Where “the removing party lacked an objectively reasonable basis for seeking removal[,]” district courts are authorized to award attorneys fees under § 1447(c). Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). However, “when an objectively reasonable basis exists, fees should be denied.” Id. Removal is not objectively reasonable when relevant case law at the time clearly forecloses the removing party’s asserted basis for removal. Lussier v. Dollar Tree Stores, Inc., 518 F.3d 1062, 1066 (9th Cir. 2008).

The district court did not abuse its discretion by concluding there was no objectively reasonable basis for the removal. At the time Defendants-Appellants removed the action to the district court, it was well settled in this circuit that an LLC is a citizen of every state of which its owners are citizens. See Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). In both the December 28, 2020, and February 23, 2021 orders, the district judge identified the correct legal rule and then applied this standard to the facts in the record to find that Defendants had no objectively reasonable basis to remove the action when the face of the Complaint reveals an absence of diversity between Powell, a Tennessee resident, and Braintrust Records, LLC, a resident of California and Tennessee.

As they did before the district court, Defendants-Appellants’ rely on In re Bisno, 433 B.R. 753 (Bankr. C.D. Cal. 2010), to argue their misapplication of the federal removal statute was objectively reasonable. However, In re Bisno concerned Rule 9027, which governs the procedure for removing a case to bankruptcy court. Id. at 756 (affirming district court’s denial of motion for attorneys’ fees because the complaint’s allegations concerning violations of federal laws constituted an objectively reasonable basis for removal). Similarly, Defendants-Appellants’ reliance on unpublished cases involving the assertion of federal claims is unpersuasive because the claims raised in their Complaint do not arise out of or otherwise concern federal law. Cf. Tran v. Hous. Auth. of the Cnty. of Los Angeles, 619 F. App’x 618 (9th Cir. 2015).1

*2 Finally, the district court was not required to make a specific finding of bad faith prior to imposing sanctions. Gibson v. Chrysler Corp., 261 F.3d 927, 950 (9th Cir. 2001). Appellants-Defendants’ arguments related to the Court’s inherent authority, 28 U.S.C. § 1927, and Federal Rule of Civil Procedure 11 have no bearing on an award of sanctions for an objectively unreasonable removal under § 1447(c).

  1. Next, Defendants-Appellants maintain it was error for the district court to sua sponte remand the action based on Powell’s Ex Parte Application without giving the Defendants-Appellants an opportunity to respond consistent with the local court rule permitting a response within two days of an Ex Parte request. They also argue relief was not warranted on an Ex parte basis because there was no emergency or risk of destruction of evidence.

The district court did not abuse its discretion by considering the Ex Parte Application because 28 U.S.C. § 1447(c) required the district court to remand the matter once it appeared that there was no subject matter jurisdiction over the case. Defendants-Appellants’ argument concerning the local rule is not well taken in light of the rules’ language that “[t]he Court generally will not rule on any application for such relief for at least 48 hours ....” (emphasis supplied). In any event, Defendants-Appellants were provided with an opportunity to brief the sanctions issue when the district court ordered supplemental briefing in its November 19, 2020 remand order.

  1. Defendants-Appellants also argue the district court abused its discretion by not considering Rule 60 in denying the Motion for Reconsideration. It was not an abuse of discretion to deny the Motion to Reconsider on the merits because none of the arguments raised therein justify reconsideration under either Rule 59 or Rule 60. As previously noted, it was well settled in this circuit that an LLC is a citizen of every state of which its owners are citizens. Johnson, 437 F.3d at 899. Defendants-Appellants’ argument that removal was objectively reasonable based on a bankruptcy case analyzing Rule 9027 did not warrant relief under Rule 59 or Rule 60.


  1. Lastly, the Defendants-Appellants argue the district court abused its discretion by denying the Motion to Strike because Powell improperly relied on settlement discussions in his response to the Motion for Reconsideration. It was not an abuse of discretion for the district court to conclude the Motion to Strike was frivolous. Rule 408 of the Federal Rules of Appellate Procedure prohibits the introduction of settlement negotiations as evidence of liability; however such admissions may be admissible for other purposes. Rhoades v. Avon Prods., Inc., 504 F.3d 1151, 1161–62 (9th Cir. 2007). The communications referenced in Powell’s response were not made to show liability, but rather to establish counsel acted with bad motive in order to increase litigation costs to Powell. See id.; see also Elia v. Roberts, No. 1:16-cv-0557, 2017 U.S. Dist. LEXIS 177116, *25–26 (E.D. Cal. Oct. 25, 2017).


  1. Finally, Powell asserts he is entitled to his appellate attorney fees in connection with this frivolous appeal under Rule 38 of the Federal Rules of Appellate Procedure and 28 U.S.C. § 1927. We deny his request without prejudice. “If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.” Fed. R. App. P. 38. Powell requested the award of fees in his answering brief, but that is not a “separately filed motion” and did not trigger this court’s authority to impose such an award.








The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).




The Honorable Gershwin A. Drain, United States District Judge for the Eastern District of Michigan, sitting by designation.




This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3.




Defendants-Appellants cited Assocs. Nat. Bank v. Erum, 206 F. App’x 666 (9th Cir. 2006) in their opening brief. Pursuant to Ninth Circuit Rule 36-3(c), unpublished memorandum dispositions “issued before January 1, 2007 may not be cited to the courts of this circuit,” except in a small number of circumstances, none of which apply here. The court does not consider this case in rendering its decision and cautions counsel to avoid violating this rule in the future.


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