OPERATION CLAMBAKE: SCIENTOLOGY COURT FILES

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             RELIGIOUS TECHNOLOGY CENTER, etc., et al., Plaintiffs,
                                       v.
                       Frank GERBODE, et al., Defendants.
                               No. CV 93-2226 AWT.
                 United States District Court, C.D. California.
                                  May 2, 1994.
  Andrew H. Wilson, Wilson, Ryan & Campilongo, San Francisco, CA, Helena K.
 Kobrin, Bowles & Moxon, Los Angeles, CA, for plaintiffs Religious Technology
 Center and Church of Scientology Intern.
  Jerold Fagelbaum, Los Angeles, CA, Gary M. Bright, Bright & Powell,
 Carpinteria, CA, for defendants David Mayo and Church of New Civilization.
           MEMORANDUM DECISION AND ORDER ON MOTION FOR ATTORNEYS' FEES

  TASHIMA, District Judge.
  *1 This case is the continuation of long-standing and acrimonious
 litigation between plaintiff Religious Technology Center (RTC) and defendants
 David Mayo, Julie Mayo and the Church of the New Civilization.  Plaintiffs
 allege that defendants violated the Racketeer Influenced and Corrupt
 Organization Act (RICO), 18 U.S.C. s 1961 et seq., by engaging in acts of
 mail fraud and wire fraud in connection with the formation and operation of
 purportedly non-profit corporations.  These corporations were sham entities,
 used only to fund prior litigation against RTC, [FN1] Religious Technology
 Center v. Scott, No. CV 85-711 AWT, and Religious Technology Center v.
 Wollersheim, No. CV 85-7197 AWT (Scott/Wollersheim litigation).  Plaintiffs
 alleged injury from these RICO violations was substantial monetary loss in
 attorneys' fees and litigation costs incurred in the Scott/Wollersheim
 litigation.
  The amended complaint and the action were dismissed because the damages
 alleged in the three RICO claims were not proximately caused by the alleged
 predicate acts.  28 U.S.C. s 1964(c) limits those who may sue for a RICO
 violation only to those who are injured "by reason of" the claimed violation.
 The Supreme Court has interpreted this language to require a direct link
 between the alleged RICO violation and the injury, in order to prove
 causation.  Holmes v. SIPC, 112 S.Ct. 1311 (1992).  Based on Holmes, the
 court held that "any direct injury from a fraudulently obtained tax exempt
 status is to the United States (IRS) and not to plaintiffs."
  Defendants now seek attorneys' fees from plaintiffs and their attorneys
 Bowles & Moxon, and Cooley, Manion, Moore & Jones in the amount of $80,030 for
 having to defend against this action.  The motion is based on F.R.Civ.P. 11,
 28 U.S.C. s 1927 and on the court's inherent powers.  In this case, the court
 concludes that proceeding under either s 1927 or its inherent powers adds
 nothing to the outcome of the motion. [FN2]  Therefore, this motion shall be
 treated as a motion made under Rule 11.
                                   DISCUSSION
  I. Governing Law
  Rule 11 now provides, in part:
   By presenting to the court ... a pleading ... an attorney ... is certifying
 that to the best of the person's knowledge, information, and belief, formed
 after an inquiry reasonable under the circumstances,--
   (1) it is not being presented for any improper purpose, such as to harass or
 to cause unnecessary delay or needless increase in the cost of litigation;
   (2) the claims, defenses, and other legal contentions therein are warranted
 by existing law or by a nonfrivolous argument for the extension, modification,
 or reversal of existing law or the establishment of new law.
  F.R.Civ.P. 11(b)(1) & (2).  Rule 11 was amended effective December 1,
 1993.  The original complaint herein was filed on January 22, 1993.  The
 amended complaint was filed on October 12, 1993. [FN3]  The order of dismissal
 was entered on December 1 and this motion was filed on January 3, 1994.  The
 parties differ on whether this motion should be governed by Rule 11 before
 or after its December 1 amendment.  The answer is that newly-amended Rule 11
 applies in part only.
  *2 Generally, on the issue of the retroactive application of a new
 statute, "where the congressional intent is clear, it governs."  Kaiser
 Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 837 (1990). [FN4]  Here, the
 order of the Supreme Court, in adopting the amendments under the Rules Enabling
 Act, is clear:  The amendments "shall take effect on December 1, 1993, and
 shall govern all proceedings in civil cases thereafter commenced and, insofar
 as just and practicable, all proceedings in civil cases then pending."
 Order, 113 S.Ct. 478 (Apr. 23, 1993). [FN5]  See 28 U.S.C. s
 2704(a) (Supreme Court may fix the extent to which newly-adopted rules shall
 apply to pending proceedings, except that it shall not require application to
 pending proceedings to the extent that retroactivity "would not be feasible or
 would work an injustice").  Thus, to the extent it is "just and practicable,"
 we apply the amended rule to this motion.  See Leader Nat'l Ins. Co. v.
 Industrial Indem. Ins. Co., No. 93-35921 slip op. at 2614 (9th Cir. Mar. 16,
 1994)(applying amended F.R.App.P. 4(a)(4) retroactively because to do so "is
 appropriate in this appeal").
  Plaintiffs first contend that the motion should not be considered because it
 was filed in violation of the "safe harbor" provision of the amended rule.
 Rule 11(c)(1)(A) now provides that a motion for sanctions under the rule
 shall not be filed until 21 days after it is served on opposing counsel and the
 challenged paper "is not withdrawn or appropriately corrected."  It would not
 be "practicable" to require compliance with the "safe harbor" provision in this
 case. [FN6]  Amended Rule 11 became effective on the same date that this
 action was dismissed.  Thus, it would be futile to now require defendants to
 comply with the "safe harbor" provision.  See Agretti v. ANR Freight Sys.,
 Inc., 1994 WL 46670 (N.D.Ill. Feb. 14, 1994)(impracticable and problematic
 retroactively to apply "safe harbor" provision).
  II. Merits
  The only "RICO" injury claimed by plaintiffs is attorneys' fees incured in the
 Scott/Wollersheim litigation.  It is clear that these damages are not
 recoverable under RICO because they do not meet the proximate cause requirement
 of Holmes v. SIPC.  Although plaintiffs cite numerous cases in support of
 their contrary position, none supports plaintiffs' argument.  Sedima,
 S.P.R.L. v. Imrex Co., 473 U.S. 479, 496-97 (1985);  Hecht v. Commerce
 Clearing House, Inc., 897 F.2d 21, 23-24 (2d Cir.1990);  and Bankers Trust
 Co. v. Rhoades, 859 F.2d 1096, 1101 (2d Cir.1988), all recognize RICO's
 proximate cause requirement--that a plaintiff's alleged RICO injury must be
 proximately caused by the predicate acts.  All of these cases make clear that a
 remote injury will not be recoverable under RICO.  Equally as important as the
 holding and language of these cases is that all of them predate Holmes.
 [FN7]  Plaintiffs also cite one case which held that attorneys' fees could be
 claimed as RICO damages.  Alexander Grant and Co. v. Tiffany Indus., Inc.,
 742 F.2d 408 (8th Cir.1984), vacated and remanded, 473 U.S. 922, reinstated
 770 F.2d 717 (8th Cir.1985).  In that case, which also predates Holmes,
 the facts disclose that the damages claimed were the direct and proximate
 result of the claimed fraud and RICO acts.  Here, to reiterate, the only direct
 injury by defendants' alleged tax fraud was to the Internal Revenue Service.
  *3 Holmes was decided on March 24, 1992.  112 S.Ct. at 1311.  The
 amended complaint was filed on October 12, 1993.  Thus, by the time the amended
 complaint was filed, Holmes was "established law" which reasonable inquiry
 (i.e., basic legal research) would have disclosed.  This RICO complaint does
 not pass muster under Rule 11(b)(2) that the claims be "warranted by
 existing law." [FN8]  Neither is any "nonfrivolous argument" made "for the
 extension, modification, or reversal of existing law" in support of plaintiffs'
 RICO theory.  No logical argument does or can support plaintiffs' contention
 that the creation of fraudulent tax-exempt organizations for the purpose of
 evading income taxes proximately caused plaintiffs' injury in having to defend
 the Scott/Wollersheim litigation.  The claims are frivolous. [FN9]  Alleging
 the RICO claims in the amended complaint was objectively unreasonable under the
 circumstances.  Zaldivar v. City of Los Angeles, 780 F.2d 823, 829 (9th
 Cir.1986).
  III. Appropriate Sanction
  A. Nature and Amount of Sanctions
  Both amended Rule 11(c)(2) and the Advisory Committee's Notes which
 accompany the December 1, 1993, amendment indicate that attorney's fees should
 not automatically be imposed for a Rule 11 violation and that the court
 should explore the adequacy of non-monetary sanctions as an effective
 deterrent.  However, the rule authorizes the award of attorney's fees if
 "warranted for effective deterrence."
  Here, because of the long and acrimonious history of repeated litigation
 between these parties, the court finds that a partial award of attorneys' fees
 is necessary as a deterrent to the bringing of further frivolous actions.
 Further, because the case has been concluded by dismissal of the amended
 complaint, other sanctions, which might be effective in the context of ongoing
 litigation, are unavailable.  Because only partial fees are being awarded, as
 authorized by Rule 11(c)(2), the court also imposes a monetary penalty to be
 paid to the court as an additional deterrent equal to that portion of
 reasonable fees not awarded to defendants.
  Defendants seek attorneys' fees in the amount of $80,030.  The hours on which
 this amount is based, however, include all hours expended in defending against
 this case in its entirely.  Attorney Helena K. Kobrin, who signed the amended
 complaint, and her law firm Bowles & Moxon, did not associate in as counsel of
 record until April 19, 1993, when this action was transferred to this
 district.  The action was commenced in the Northern District of California on
 January 22, 1993.  The attorneys of record, who filed the original complaint,
 were Wilson, Ryan & Campilongo, and Michael T. Stoller.  No sanctions are
 sought against these attorneys.  Attorney Kobrin and Bowles & Moxon cannot be
 held responsible for the costs of defending the action before they became
 attorneys of record for plaintiffs.
  Further, the action continued to be litigated on the original complaint after
 transfer to this district.  It was not until October 12, 1993, that Attorney
 Kobrin filed the amended complaint.  It is that pleading which has been held to
 be frivolous.  Thus, sanctions shall be limited to reasonable fees incurred by
 defendants after the filing of the amended complaint. [FN10]
  *4 Rule 11(c)(1)(A) now makes it discretionary with the court as to
 whether or not to award attorneys' fees to the prevailing party "incurred in
 presenting or opposing the motion." [FN11]  The rule does not require the
 presence of any exceptional circumstances for the award of such fees, but only
 that the award be "warranted."  Again, because of the long-standing and
 acrimonious litigation between the parties, the court finds that the award of
 fees for the preparation of the Rule 11 motion is warranted in this case.
  In calculating the reasonable fees in this case, the court employs the
 lodestar method.  Commencing with their first telephone conference on October
 12, 1993, to discuss the amended complaint, defense counsel incurred,
 respectively, a total of 47.1 hours (for Mr. Fagelbaum) and 39.3 hours (for Mr.
 Bright), plus an additional 49.2 hours of a law clerk's time, to the conclusion
 of the case, including work on the pending motion.  The court finds these hours
 to be reasonable.
  Defendants seek an award based on an hourly rate of $225 for the work of
 Jerold Fagelbaum.  While the court agrees that this rate is well within the
 range of fees charged by competent attorneys in the community for similar work,
 for this case, the court finds that it is somewhat inflated.  Mr. Fagelbaum has
 represented the same parties in the related litigation.  He is very familiar
 with the context of this litigation.  The work in this case and on this motion
 was not unusual or complex. [FN12]  The court finds that an hourly rate of $200
 is a reasonable hourly rate for Mr. Fagelbaum's work, especially when compared
 to the rate awarded below for the work of Mr. Bright.
  Defendants seek an award based on an hourly rate of $150 for the work of Gary
 M. Bright and a rate of $50 per hour for his law clerk.  The court finds these
 rates to be reasonable.
  Thus, the reasonable lodestar fees for the respective attorneys are:

       For Jerold Fagelbaum            47.1 hrs.@$200             $ 9,420.00
       For Gary M. Bright              39.3 hrs.@$150               5,895.00
       For Bright's Law Clerk          49.2 hrs.@$50                2,460.00
                                                                  ----------
       TOTAL LODESTAR AMOUNT                                      $17,775.00

  The court awards to defendants as a sanction under Rule 11 and in partial
 reimbursement of the costs they incurred in defending against the frivolous
 amended complaint one-half of the lodestar amount, or $8,887.50.  A like amount
 is assessed as a monetary penalty and shall be payable to the Clerk of the
 Court.
  B. Persons to be Sanctioned
  Amended Rule 11(c)(2)(A) now prohibits the imposition of monetary sanctions
 on a represented party, such as RTC, for a violation of Rule 11(b)(2).
 [FN13]  Therefore, to the extent sanctions are sought against plaintiff RTC,
 the motion must be denied.
  However, amended Rule 11(c) now authorizes sanctions to be imposed on law
 firms, as well as the particular attorney who signs the offending pleading.
 [FN14]  More specifically, Rule 11(c)(1)(A) goes on to provide that "Absent
 exceptional circumstances, a law firm shall be held jointly responsible for
 violations committed by its partners, associates, and employees."
  *5 There are no such "exceptional circumstances" here to warrant the
 imposition of sanctions only on Attorney Kobrin and not on her law firm,
 Bowles & Moxon.  Although, in light of Pavelic & LeFlore, this is a new
 rule, it would not work an injustice on Bowles & Moxon to apply the rule of
 law-firm-joint-liability retroactively.  As the Advisory Committee has
 explained, this is nothing more than an application of "established principles
 of agency."
  The motion also seeks sanctions against the law firm of Cooley, Manion,
 Moore & Jones, P.C.  That law firm, as well as the law firm of Wilson, Ryan &
 Campilongo, [FN15] along with Bowles & Moxon, appears as counsel of record for
 plaintiffs on the amended complaint.  However, it was Attorney Kobrin of
 Bowles & Moxon who signed the complaint.
  Rule 11(c) provides that the court may "impose an appropriate sanction upon
 the attorneys, law firms, or parties that have violated subdivision (b) or are
 responsible for the violation."  While this language, standing alone, does not
 clearly indicate that the rule is intended to catch within its sweep a co-
 counsel law firm which did not actually sign the offending pleading, the
 Advisory Committee's Notes do provides some clarification.
   The revision permits the court to consider whether other attorneys in the
 firm, co-counsel, other law firms, or the party itself should be held
 accountable for their part in causing a violation.
  Advisory Committee Notes to 1993 Amendment to Rule 11.
  It, thus, appears that the court has the authority to sanction a co-counsel
 law firm, as well as the primary offending firm, even though co-counsel did not
 sign the offending pleading.  In order to do so, however, the record must show
 that firm's culpability--in the Committee's words, evidence of its "part in
 causing a violation."  Here, the court finds that the record is insufficient to
 establish that any law firm besides Bowles & Moxon was responsible for the
 drafting and filing of the amended complaint.  Therefore, the motion will be
 denied as against Cooley, Manion, Moore & Jones.
                                   CONCLUSION
  For the reasons set forth above, the motion of defendants David Mayo, Julie
 Mayo and Church of New Civilization (defendants) for sanctions under Rule 11
 is granted in part, to the extent set forth below.  Accordingly,
  IT IS ORDERED:
  1. Defendants shall recover from Attorney Helena K. Kobrin and the law firm of
 Bowles & Moxon, jointly and severally, monetary sanctions under Rule 11 in
 the sum of $8,887.50, as partial reimbursement for attorneys' fees incurred in
 defending against the amended complaint.
  2. In addition, Attorney Helena K. Kobrin and the law firm of Bowles & Moxon,
 jointly and severally, shall pay to the Clerk of the Court a monetary penalty
 in the sum of $8,887.50, as a further sanction.
  3. The sums set forth in paragraphs 1 and 2 are payable within 20 days hereof
 and if not paid within said period shall be subject to execution as a final
 judgment.
  *6 4. Except to the extent it is granted in paragraphs 1, 2 and 3, above,
 defendants' motion for attorneys' fees is denied.

      FN1. Plaintiffs continue to assert, in opposition to this motion, that
     "defendants have been and continue to be supported in their litigation
     efforts by a millionaire non-party through means of fraudulently tax-exempt
     corporations."  Opp. at 2.

      FN2. Moreover, the court finds that defendants have not established the
     "bad faith" component required for the imposition of sanctions under
     either s 1927 or the court's inherent powers.  See Chambers v. NASCO,
     Inc., 111 S.Ct. 2123, 2133 (1991)(inherent powers);  New Alaska Dev.
     Corp. v. Guetschow, 869 F.2d 1298, 1306 (9th Cir.1989)(s 1927).

      FN3. The amended complaint was prepared by Helena K. Kobrin of Bowles &
     Moxon.  Bowles & Moxon became associated as counsel of record for
     plaintiffs on April 19, 1993, the day this action was transfered to this
     district from the Northern District of California.

      FN4. Thus, the court need not address the "apparent tension," between
     Bradley v. Richmond School Bd., 416 U.S. 696, 711 (1974), and Bowen
     v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988), in the rule to be
     applied when congressional intent is unclear.  See Bonjorno, 494 U.S. at
     836-37.  See also Landgraf v. USI Film Prod., 62 U.S.L.W. 4255, 4267 (S.Ct.
     Apr. 26, 1994)(applying Bowen canon of presumption against retroactivity
     to the Civil Rights Act of 1991 in light of "no clear evidence of
     congressional intent" to the contrary).

      FN5. Another amendment to the Rules which also became effective on Dec. 1,
     1993, was the addition of subdivision (2) to F.R.Civ.P. 54(d).  Rule
     54(d)(2)(B) provides that a motion for attorneys' fees "must be filed and
     served no later than 14 days after entry of judgment."  However, Rule
     54(d)(2)(E) provides that subdivision (2) does not apply to "claims for
     fees and expenses as sanctions for violations of these rules or under 28
     U.S.C. s 1927."

      FN6. It would appear to be problematical to comply with the "safe harbor"
     provision in any case involving a challenge to a complaint.  Even if the
     frivolousness is immediately apparent on the face of the pleading at the
     time of service, does service of a motion for sanctions under Rule 11
     toll the 20-day period to answer under Rule 12(a)(1)(A)?  If not, what
     purpose does compliance with the "safe harbor" provision serve if the
     complaint must be responded to before the 21-day waiting period expires?
     If the frivolousness is not immediately apparent and the Rule 11 motion
     is not made until after the complaint is dismissed, what useful purpose is
     served by compliance with the "safe harbor" provision at that point?
     Certainly, by that juncture, it is too late for the complaint to be
     "withdrawn or appropriately corrected."

      FN7. For this reason alone, plaintiffs' citation of lower court, pre-
     Holmes cases cannot be viewed as a "nonfrivolous argument for the ...
     modification, or reversal of existing law."

      FN8. This substantive standard under Rule 11(b)(2) remains unchanged
     from the pre-amendment version in effect at the time the amended complaint
     was filed.

      FN9. Because the court finds the amended complaint to be sanctionable as
     frivolous, under Rule 11(b)(2), it does not explore defendants' further
     contention that it was filed for an improper purpose, in violation of
     Rule 11(b)(1).

      FN10. As the Advisory Committee's Notes to the Dec. 1, 1993, amendment to
     Rule 11 state:  "Any such award [of attorney's fees] to another party,
     however, should not exceed the expenses and attorneys' fees for the
     services directly and unavoidably caused by the violation of the
     certification requirement."

      FN11. Prior controlling circuit law prohibited the award of such fees.
     Lockary v. Kayfetz, 974 F.2d 1166, 1178 (9th Cir.1992).

      FN12. The court notes that counsel hardly addressed the retroactivity
     problems addressed in this opinion.

      FN13. This amendment restricts the scope of Business Guides, Inc. v.
     Chromatic Communications Enter., Inc., 498 U.S. 533 (1991).

      FN14. This amendment overrules Pavelic & LeFlore v. Marvel
     Entertainment Group, 493 U.S. 120 (1989), which construed the language of
     Rule 11 before the 1993 amendment as authorizing sanctions only against
     the attorney who signed the offending pleading.

      FN15. No sanctions are sought against Wilson, Ryan & Campilongo.

End of file...