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Pennsylvania International Education Service Group, LLC v. Xie

United States District Court, E.D. Virginia, Alexandria Division

March 11, 2015

PETER XIE, et al., Defendants.


JAMES C. CACHERIS, District Judge.

This matter is before the Court on the collective Defendants' Motion to Dismiss and Motion for Rule 11 Sanctions. [Dkts. 5, 8.] For the following reasons, the Court will deny both motions.

I. Background

Plaintiff Pennsylvania International Education Service Group, LLC d/b/a PIESG China ("Plaintiff") filed this lawsuit against Defendants Peter Xie, a.k.a. Yantao Xie ("Mr. Xie"), Pennsylvania International Education Service Group, LLC ("PIESG US"), and UC Educations, LLC (collectively "Defendants"), alleging, inter alia, that Defendants breached a partnership agreement with Plaintiff, which was entered into for the purpose of operating an international exchange student program between China and the United States. (Compl. [Dkt. 1] at ¶¶ 7-10.) Generally, Plaintiff claims that Defendants breached the agreement when Mr. Xie failed to pay 50% of the net profits owed. (Id. at ¶ 10.) In the Complaint, Plaintiff pleads seven causes of action under Virginia[1] law: (1) breach of partnership agreement (id. at ¶¶ 7-16); (2) breach of fiduciary duties (id. at ¶¶ 17-22); (3) accounting of partnership expenses and net profits and/or judicial accounting (id. at ¶¶ 23-26); (4) restitution as remedy for unjust enrichment (id. at ¶¶ 27-32); (5) constructive trust (id. at ¶¶ 33-38); (6) declaratory judgment on dissociation and dissolution of partnership (id. at ¶¶ 39-42); and (7) injunctive relief (id. at ¶¶ 43-45). Plaintiff seeks approximately $600, 000 in monetary damages, in addition to other equitable relief. (Id. at 11-12.)

Defendants filed the motion to dismiss on December 22, 2014 and the motion for sanctions on January 14, 2015. (Defs.' Mot. to Dismiss [Dkt. 5]; Defs.' Mot. for Sanctions [Dkt. 8].) Defendants' noticed a hearing on the motion to dismiss for 10:00 a.m. on February 12, 2015. [Dkt. 6.] On February 11, 2015 at 11:04 p.m. EST, less than twelve hours before the hearing, Plaintiff filed an opposition memorandum. (Pl.'s Opp'n [Dkt. 12].) The following morning, the Court held the hearing, scheduled almost a month in advance, with all counsel present. [Dkt. 13.] To allow for full briefing on the merits of the pending motions, the Court continued the hearing until March 5, 2015, and imposed monetary sanctions on Plaintiff for defense counsel's fees associated with the appearance at the motion hearing. (Order [Dkt. 14].) With briefing now complete, the motions are ripe for disposition.

II. Legal Standard

A. Rule 12(b)(6)

A court reviewing a complaint on a Rule 12(b)(6) motion must accept well-pleaded allegations as true, and must construe all allegations in favor of the plaintiff. See Randall v. United States, 30 F.3d 518, 522 (4th Cir. 1994). "The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint; importantly, [it] does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Butler v. United States, 702 F.3d 749, 752 (4th Cir. 2012) (citations and internal quotation marks omitted). However, the court need not accept as true legal conclusions disguised as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 679-81 (2009). The plaintiff's facts must "be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

Typically, the Court "is not to consider matters outside the pleadings or resolve factual disputes when ruling on a motion to dismiss." Bosiger v. U.S. Airways, 510 F.3d 442, 450 (4th Cir. 2007). However, under Rule 12(d), when ruling on a Rule 12(b)(6) motion, it is within the Court's discretion to consider matters outside the pleadings, but if the Court does so, "the motion must be treated as one for summary judgment under Rule 56... [and all] parties must be given a reasonable opportunity to present all the material that is pertinent to the motion." Finley Lines Joint Protective Bd. Unit 200 v. Norfolk S. Corp., 109 F.3d 993, 997 (4th Cir. 1997). In general, district courts will make this conversion if the extra-pleading material is comprehensive and facilitates disposition of the action pursuant to Rule 56. 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1336 (3d ed. 1998). Otherwise, when the extraneous material is inconclusive and not dispositive, district courts typically reject the conversion and resolve the motion pursuant to Rule 12(b)(6). Id.

B. Rule 11

Rule 11 of the Federal Rules of Civil Procedure guards against frivolous filings in the interest of judicial economy and efficiency. See, e.g., Pinpoint IT Servs., LLC v. Atlas IT Export Corp., 802 F.Supp.2d 691, 693 (E.D. Va. 2011) (citation omitted). By signing a pleading, an attorney makes three promises to the Court: (1) he or she has read the pleading, motion or other paper; (2) to the best of his or her knowledge, after a reasonable inquiry, the pleading is well-grounded in fact and is warranted by existing law or has a good faith argument for the extension, modification, or reversal of existing law; and (3) the pleading is not intended for any improper purposes, such as to harass, cause unnecessary delay, or increase the cost of litigation. Fed.R.Civ.P. 11. "If a pleading... is signed in violation of this rule, the court... shall impose upon the person who signed it... an appropriate sanction, which may include an order to pay to the other party or parties the amount of reasonable expenses incurred because of the filing of the pleading... including a reasonable attorney's fee." Id.

"In order to determine good faith' and improper motive' under Rule 11, a court must judge the attorney's conduct under an objective standard of reasonableness rather than by assessing subjective intent." Stevens v. Lawyers Mut. Liability Ins. Co. of N. Carolina, 789 F.2d 1056, 1060 (4th Cir. 1986) (citation omitted). Stated differently, a legal position is "unjustified when a reasonable attorney would recognize it as frivolous." In re Sargent, 136 F.3d 39, 352 (4th Cir. 1998) (quotations and citation omitted). And such a position or pleading violates Rule 11 if "it has absolutely no chance of success under the existing precedent." Id . (citations omitted). District courts have discretion to ensure the imposed sanction is tailored to compensate, punish, or deter the conduct at issue. See, e.g., Weisman v. Alleco, Inc., 925 F.2d 77 (4th Cir. 1991). Moreover, any sanction imposed pursuant to Rule 11 is typically entitled to deference by the appellate court. Stevens, 789 F.2d at 1060 (citing Nelson v. Piedmont Aviation, Inc., 750 F.2d 1234, 1238 (4th Cir. 1984)).

III. Analysis

A. Motion to Dismiss Pursuant to ...

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