VINEWOOD CAP. v. SHEPPARD MULLIN RICHTER HAMPTON

r Sanctions App., doc. #38 at 69.) These pleadings do not, as argued by Vinewood, give rise to a fact issue. Their existence and their listing of the Sheppard Mullin defendants as defense counsel is indisputable.

Although Vinewood does not do so in its briefing, Vinewood might argue that despite its attorneys' knowledge of the Sheppard Mullin defendants' participation in Vinewood I, it was unaware of their involvement. But Vinewood is a sophisticated business entity that has participated in this and related litigation for years. It is not oblivious to the developments of this case. Indeed, Vinewood alleges that its privileged information has been used against it in Vinewood I for years. Even if Vinewood did not have direct knowledge of the Sheppard Mullin defendants' participation in Vinewood I, the use, if any, against Vinewood of its privileged information should have raised a red flag causing Vinewood to investigate where the privileged information was coming from. Given all of the circumstances, Vinewood was at least constructively aware of the Sheppard Mullin defendants' participation in Vinewood I. Cf. Hourani v. Katzen, 305 S.W.3d 239, 256 (Tex. App. — Houston [14th Dist.] 2009, pet. denied) (stating knowledge of right for purposes of waiver may be actual or constructive). In any event, in the context of an attorney-client relationship, knowledge acquired by an attorney is imputed to the client. See Am. Flood Research, Inc. v. Jones, 192 S.W.3d 581, 584 (Tex. 2006).

Thus, Vinewood was aware of its alleged attorney-client relationship with the Sheppard Mullin defendants, aware of the rights that relationship affords it, and aware of the Sheppard Mullin defendants' acting as counsel for DMI and related entities in Vinewood I well before the Sheppard Mullin defendants' formal appearance in November 2009. Vinewood's attorneys, and thus by imputation Vinewood, were aware of the Sheppard Mullin defendants' involvement from the initiation of Vinewood I in May 2006 due to the Sheppard Mullin defendants' being listed as defense counsel on motions and pleadings. Vinewood was given clear indication that the Sheppard Mullin defendants were acting as counsel for DMI and related entities in February 2008 when they formally appeared as counsel. And, if Vinewood is to be believed, during the years that Vinewood I has been pending, Vinewood's confidential information has been used against it, giving Vinewood constructive knowledge that the Sheppard Mullin defendants were disclosing that information and acting against its interests.

A right may be waived by delaying assertion of the right for an unreasonable time, or by intentional conduct that is inconsistent with the right. See United States Fid. and Guar. Co. v. Bimco Iron M. Corp., 464 S.W.2d 353, 357 (Tex. 1971); see also Furr v. Hall, 553 S.W.2d 666, 674 (Tex. Civ. App. — Amarillo 1977, writ ref'd n.r.e.). Vinewood failed to complain that the Sheppard Mullin defendants' acting as defense counsel in Vinewood I is a breach of fiduciary duty until November 2009 and thereby has unreasonably delayed in making such complaint. Cf. Vinewood Capital, LLC v. Dar Al-Maal Al-Islami Trust, No. 4:06-CV-316-Y, 2010 U.S. Dist. LEXIS 30358, at *22-*24 (N.D. Tex. Apr. 2, 2010) (collecting cases in which a former client, due to delay, was found to have waived its right to seek disqualification based on a complaint of conflict interest). Vinewood could have sought disqualification of the Sheppard Mullin defendants from the outset, arguing that their representation of the Vinewood I defendants was on the same or substantially the same matter as their former representation of Vinewood. See Tex. R. Prof. Conduct 1.09. Or Vinewood could have argued that the representation of the Vinewood I defendants presented a reasonable probability that Vinewood's privileged information would be disclosed. See id.; see also Tex R. Prof. Conduct 1.05. Vinewood did neither, instead allowing the Sheppard Mullin defendants to actively represent the Vinewood I defendants and standing by as, allegedly, over several years, the Sheppard Mullin defendants used its privileged information against it. Thus, Vinewood not only delayed in asserting its rights, it acted inconsistent with them and has, therefore, waived its claim for breach of fiduciary duty.

Similarly, Vinewood's inaction, as evidenced by its pleadings and the record from Vinewood I, establish the defense of quasi-estoppel. As one Texas court has explained the doctrine:

Quasi estoppel is similar to but different from equitable estoppel. While equitable estoppel requires proof of a false statement or detrimental reliance, quasi estoppel requires no such showing. . . . It applies when it would be unconscionable to allow a person or party to maintain a position inconsistent with one in which he acquiesced or from which he accepted a benefit.

Cambridge Prod., Inc. v. Geodyne Nominee Corp., 292 S.W.3d 725, 732 (Tex. App. — Amarillo 2009, pet. denied); see also Bott v. J.F. Shea Co., 299 F.3d 508, 512-13 (5th Cir. 2002). Again, Vinewood has acquiesced in the Sheppard Mullin defendants' representation of the Vinewood I defendants for over three years. And Vinewood did so despite actual knowledge of its alleged attorney-client relationship with the Sheppard Mullin defendants and at least constructive knowledge of the Sheppard Mullin defendants' participation in Vinewood I as defense counsel. Vinewood I, as set out in the background section above, involves complicated claims and a complex procedural background. To allow Vinewood to pursue a claim of breach of fiduciary duty, which would clearly threaten if not terminate the Sheppard Mullin defendants' participation in Vinewood I as defense counsel and potentially force the Vinewood I defendants to retain new counsel after over three years of litigation, would be unconscionable.

And despite Vinewood's arguments to the contrary, that is exactly what their claim of breach of fiduciary duty threatens. Again, Vinewood insists that it is not seeking disqualification of the Sheppard Mullin defendants from Vinewood I. An attorney is, of course, prohibited from divulging his former client's privileged information, Tex. R. Prof. Conduct 1.05, and may not represent a client adverse to a former client on a subject matter substantially related to the former representation or if the new representation presents a reasonable probability of disclosing the former client's privileged information. See Tex. R. Prof. Conduct 1.09. But Vinewood's claim is based on the Sheppard Mullin defendants' allegedly "tak[ing] actions against [it] on the same matter upon which an attorney-client relationship was established" and disclosing its privileged information to the Vinewood I defendants. Thus, if Vinewood's claim for breach of fiduciary duty goes forward and is

decided in Vinewood's favor, it would be tantamount to a ruling that the Sheppard Mullin defendants are engaging in prohibited representation, a conclusion that this Court could not simply ignore by allowing the prohibited representation to continue. See In re Am. Airlines, 972 F.2d 605, 611 (5th Cir. 1992) (stating that "the district court has the duty and responsibility of supervising the conduct of attorneys who appear before it" and is "obliged to take measures against unethical conduct") (quoting Woods v. Covington County Bank, 537 F.2d 804, 810 (5th Cir. 1976) and Kevlik v. Goldstein, 724 F.2d 844, 847 (1st Cir. 1984)) (emphasis in Am. Airlines). As explained in the Order on Motion for Declaration in Vinewood I, Vinewood's attempt to separate the issues of disqualification in Vinewood I and its claim of breach of fiduciary duty in Vinewood II are, at best, artificial and contrived.

The timing of Vinewood's claims makes application of quasi-estoppel particularly appropriate. As Vinewood acknowledges, Vinewood I has been pending since May 2006 with little progress, largely due to discovery disputes and attempts to refer portions of the case to arbitration. Now, with discovery having only recently begun in earnest and with various scheduling deadlines approaching, Vinewood complains of the Sheppard Mullin defendants' involvement in Vinewood I. Finding a complaint of a conflict or improper representation waived is particularly appropriate when, as in this case, the complaint appears abusive or is being used as a delaying tactic. See Atasi Corp. v. Seagate Tech., 847 F.2d 826, 832 (Fed. Cir. 1988); see also United States Fire Ins. Co., 50 F.3d at 1315 (stating that because the former client offered only a "tortured justification" for disqualification, the request was more suggestive of a tactic to delay and harass than a conscientious professional concern).

Finally, with regard to the breach-of-fiduciary-duty claim, the Court notes that Vinewood has not alleged any facts that raise the claim above the speculative level. Vinewood alleges that the Sheppard Mullin defendants "have used Vinewood's confidential information against it," "have shared Vinewood's confidential information with their own clients," and have "use[d] their intimate knowledge of Vinewood's business against Vinewood." Vinewood does not point to single pleading, motion, or appendix in Vinewood I that contains its privileged information. Vinewood does not allege a statement or action by any of the Vinewood I defendants that suggests they have been made aware of Vinewood's privileged information by the Sheppard Mullin defendants. Vinewood does not point to any tactic employed or argument made by the Vinewood I defendants that appears to have been based on its privileged information. Indeed, Vinewood does not allege a single specific instance of its privileged information's being shared with the Vinewood I defendants or being used against it by the Sheppard Mullin defendants. Rather, it relies on the foregoing allegations, which are no more than a

statement of the judgment that Vinewood seeks in Vinewood II: that the Sheppard Mullin defendants committed a breach of fiduciary duty by divulging Vinewood's privileged information and using that information against it in Vinewood I. Such legalistic and conclusory allegations are insufficient to state a claim. Cf. Twombly, 550 U.S. at 555, 570.

Of course, Vinewood argues that, in the event the Court is inclined to grant the motion to dismiss, Vinewood should be allowed to amend its pleadings. Given the circumstances, the Court will not grant such leave. Again, Vinewood waited for over three years to complain of the Sheppard Mullin defendants' involvement in Vinewood I. Vinewood unpersuasively argues that its breach-of-fiduciary-duty claim is a separate issue from disqualification in Vinewood I, as if to assure the Court that the already protracted Vinewood I, which has been plagued with frivolous and dilatory tactics, will not be delayed by Vinewood II. The contrary has already been the case as Vinewood I has been stayed until rulings on the Sheppard Mullin defendants' motion for declaration in that case and on the motions in this case can be made to clear the way for the Sheppard Mullin defendants to continue as defense counsel in Vinewood I without being exposed to additional liability.

Vinewood, despite its request for leave to amend, does not offer a proposed amended complaint or explain in its response brief how it would amend its pleadings to circumvent the waiver and estoppel defenses raised by the Sheppard Mullin defendants. Nor could it, as those defenses are based on the facts as alleged by Vinewood and apparent from the docket in Vinewood I. Further, this is not a case in which the facts giving rise to the plaintiff's claims are uniquely within the knowledge of the defendant. Vinewood knew of any attorney-client relationship formed with the Sheppard Mullin defendants and, at least through its attorneys, knew that the Sheppard Mullin defendants were acting as defense counsel in Vinewood since its filing. Vinewood is, of course, aware of its own privileged information and would be uniquely positioned to recognize any improper use of it by the Sheppard Mullin defendants in Vinewood I and to raise a timely complaint. Yet, rather than plead facts sufficient to state a plausible claim, Vinewood filed a pleading that contains only conclusory allegations in support of its claim for breach of fiduciary duty. In this context, in litigation that has already been a drain on this Court's time and resources, Vinewood would have the Court rule on the motion to dismiss, identify for it the shortcomings in its pleadings, and grant it leave to amend. The Court will not do so.

For all of these reasons, Vinewood's claim for breach of fiduciary duty against the Sheppard Mullin defendants will be dismissed.

b. The Fraud Claims

The Sheppard Mullin defendants argue that Vinewood's fraud claim fails to satisfy Federal Rule of Civil Procedure 9(b) in a number of respects. Under Rule 9(b) "a party must state with particularity the circumstances constituting fraud. . . ." FED. R. CIV. P. 9(b). To satisfy Rule 9(b), the plaintiff must allege with specificity "the statements (or omissions) considered to be fraudulent, the speaker, when and why the statements were made, and an explanation why they are fraudulent." Plotkin v. IP Axess, Inc., 407 F.3d 690, 696 (5th Cir. 2005).

Vinewood alleges two fraudulent statements. First, it alleges that the Sheppard Mullin defendants "contacted Vinewood and informed Vinewood that it would settle the mudaraba agreement for the property turnover." Second, McGuire is alleged to have "stated that he would have the documents [to effect the turnover] drawn up."

There is no allegation as to when either of these alleged misrepresentations were made. And there is no allegation of the speaker with regard to the first statement.

Even so, the Court would not be inclined to grant dismissal on this basis alone. This suit was filed in a Texas state court and thus was not subject to Rule 9(b)'s strict pleading requirement, so allowing an opportunity to amend to Rule 9(b)'s specifications would not be out of order.

The Sheppard Mullin defendants, however, offer arguments beyond Rule 9(b). They point out that Vinewood's pleading alleges that "defendants contacted Vinewood and informed Vinewood that it would settle the mudaraba agreement for the property turnover." (Mot. to Dism. Br., doc. #8, at 15 (emphasis in original).) The Sheppard Mullin defendants insist that the "it" in this phrase must refer to Alpha Investment, the party to the Mudaraba Agreement. They insist that the pleadings allege merely that they communicated a proposed settlement agreement on behalf of their client, Alpha Investment. But after alleging that the Sheppard Mullin defendants "stat[ed] in writing that the settlement was done," Vinewood goes on to allege that "these statements were false." (Doc. #1, p. 9, ¶ 23.) Vinewood also alleges that the Sheppard Mullin defendants made the above representations even though they "never intended to draft papers to effectuate the transfer." ( Id. at 8, ¶ 22.)

The Sheppard Mullin defendants' most persuasive argument is that if, as alleged by Vinewood, "by the terms of the [Mudaraba Agreement], the sole remedy for a breach was a turnover of the property interest to DMI," ( id. at 8, ¶ 20), then any representation that such turnover would be accepted is of no legal consequence. That is, if Alpha Investment had already agreed to the property turnover in the Mudaraba Agreement, then any representation that it would accept the property turnover would be redundant of the agreement. And if Alpha Investment refused to accept the turnover, that would be a breach of contract, not fraud.

Vinewood alleges that the Sheppard Mullin defendants represented not only that Alpha Investment had agreed to accept the turnover, but that documents were being drawn up to this effect in an effort to "delay Vinewood and prevent [it] from taking action to [otherwise] resolve the mudaraba." But Vinewood has not alleged any facts to show that it has suffered injury as a result of the alleged misrepresentation regarding Alpha Investment's acceptance of the turnover, an essential element of a fraud claim. See De Santis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990). The Court accepts as true Vinewood's allegation that the Mudaraba Agreement provided for the property turnover as the only remedy for default, meaning there was no other way to resolve the matter, which makes any delay in Vinewood's efforts to otherwise resolve it irrelevant. Either Alpha Investment accepts the turnover, resolving the default, or it refuses, giving rise to a claim for breach of contract by Vinewood. Even assuming the Sheppard Mullin defendants misrepresented Alpha Investment's willingness to accept the turnover, under the facts as alleged by Vinewood, such misrepresented willingness is irrelevant both to Vinewood's right and Alpha Investment's obligation to resolve the default through the turnover provision because the Mudaraba Agreement and the collateral-turnover provision had already been agreed to. Hence, any representation by the Sheppard Mullin defendants regarding Alpha Investment's willingness to accept the turnover is not the sort of material representation on which Vinewood could justifiably rely or that could give rise to a fraud

claim. Cf. Burleson State Bank v. Plunkett, 27 S.W.3d 605, 613 (Tex. App. — Waco 2000, pet. denied) ("Material means a reasonable person would attach importance to and would be induced to act on the information. . . .").

Nor has Vinewood stated a fraud claim based on the Sheppard Mullin defendants' representation that they would prepare documents to effect the turnover. Vinewood alleges that after it was agreed that the Mudaraba Agreement would be settled by turnover of the collateral, McGuire stated that he would have the necessary documents drawn up. He did not, says Vinewood, and this caused delay in resolving the matter. But Vinewood does not explain how this delay caused it to suffer damages — for instance, by increasing its indebtedness under the agreement or exposing the collateral to depreciation. Cf. NRC, Inc. v. Huddleston, 886 S.W.2d 526, 532 (Tex. App. — Austin 1994, no writ) (concluding that evidence that property owner was incurring $1,327 in costs for insurance, taxes, and maintenance was sufficient to support award of $37,000 in actual damages for escrow agent's 28-month delay in closing on contract for sale of the property); G. McClung Cotton Co. v. Cotton Concentration Co., 479 S.W.2d 733, 737-41 (Tex. Civ. App. — Dallas 1972, writ ref'd n.r.e.) (concluding that defendant's delay in weighing and sampling cotton exposed the plaintiff cotton seller to declining market prices and thus caused plaintiff damages).

Vinewood again requests leave to amend if the Court is inclined to grant dismissal. Again, Vinewood offers no explanation for its failure to properly allege its fraud claims from the outset, no real explanation or defense of those claims, and no discussion of how its pleadings could be amended to properly state the claims. Consequently, the Court will grant the motion to dismiss both as to the fraud claim based on the alleged statement that the Mudaraba Agreement could be settled by turnover of the collateral and the fraud claim based on McGuire's representation that he would prepare documents to memorialize the turnover, and will deny leave to amend these claims.

C. Motion for Judgment on the Pleadings (doc. #15)

1. Legal Standards

Federal Rule of Civil Procedure 12(c) provides that "after the pleadings are closed — but early enough not to delay trial — a party may move for judgment on the pleadings." Fed.R.Civ.P. 12(c). A Rule 12(c) motion "is designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts." Great Plains Trust Co. v. Morgan Stanley Dean Witter Co., 313 F.3d 305, 312 (5th Cir. 2002).

A motion under Rule 12(c) is subject to the same standard as a motion to dismiss under Rule 12(b)(6). See Johnson v. Johnson, 385 F.3d 503, 529 (5th Cir. 2004). Thus, the court must "accept all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." Great Plains Trust Co., 313 F.3d. at 312-13. A court need not, however, "accept as true conclusory allegations or unwarranted deductions of fact." Id. at 313. Ultimately, just as with a motion under Rule 12(b)(6), "the central issue is whether, in the light most favorable to the plaintiff, the complaint states a valid claim for relief." Hughes v. The Tobacco Inst., Inc., 278 F.3d 417, 420 (5th Cir. 2001).

2. Analysis

a. Claim for Breach of Fiduciary Duty

Cox Smith seeks judgment on the pleadings, pointing out that Vinewood's complaint does not allege it ever formed an attorney-client relationship with Cox Smith. Under Texas law, a fiduciary duty may exist in two situations. See Crim Truck Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591, 593-94 (Tex. 1992). Certain formal relationships, such as attorney-client, include a fiduciary duty. See id.; see also Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998). Vinewood's response does not even address this point. If there was no attorney-client relationship between Cox Smith and Vinewood, then there was no related fiduciary duty.

A fiduciary duty may also arise informally in certain "confidential relationships." See Assoc. Indem. Corp. v. CAT Contr., 964 S.W.2d 276, 287 (Tex. 1998). Vinewood does not allege in its pleadings or argue in its response brief that its relationship with Cox Smith, apart from any attorney-client relationship, or the circumstances of this case gave rise to an informal fiduciary duty on the part of Cox Smith. The closest Vinewood comes to addressing this point is to argue that Cox Smith, as co-counsel with the Sheppard Mullin defendants in Vinewood I, is presumed to be tainted with Vinewood's privileged information. Such a statement takes a portion of the applicable law out of context. Unless disqualified counsel has disclosed privileged information to co-counsel, disqualification of co-counsel is not proper, and a presumption of disclosure is inappropriate. See Brennan's, Inc. v. Brennan's Restaurants, Inc., 590 F.2d 168, 174 (5th Cir. 1979). Only after the party seeking disqualification has "first demonstrate[d] that there were substantive conversations between disqualified counsel and co-counsel, joint preparation for trial by those counsel, or the apparent receipt by co-counsel of confidential information" does the burden shift to co-counsel to prove non-disclosure. In re American Home Products Corp., 985 S.W.2d 68, 81 (Tex. 1998). Vinewood has not alleged or argued any of these points. Nor has it argued that the taint concept from the disqualification context could be extended to create a duty on the part of co-counsel to protect privileged information.

For these, and for all of the reasons discussed above regarding the claim of breach of fiduciary duty against the Sheppard Mullin defendants, the Court will grant the motion for judgment on the pleadings on this claim as to Cox Smith.

b. The Fraud Claims

Cox Smith advances the same arguments made by the Sheppard Mullin defendants in seeking judgment on the fraud claim as pled. Again, Vinewood alleges two fraudulent statements. First, that the defendants "contacted Vinewood and informed Vinewood that it would settle the mudaraba agreement for the property turnover." Second, McGuire is alleged to have "stated that he would have the documents [to effect the turnover] drawn up."

As for the first statement, judgment on the pleadings will be granted for the same reasons as discussed above in connection with the Sheppard Mullin defendants' motion to dismiss. There is no allegation by Vinewood that this alleged misrepresentation caused it any harm. Just as with a motion to dismiss, in the context of a motion for judgment on the pleadings the Court must accept as true Vinewood's well-pleaded allegations, including its allegation that "by the terms of the [mudaraba] agreement, the sole remedy for a breach was a turnover of the property interest to DMI." Thus, notwithstanding any representation about the willingness of DMI, or its subsidiary Alpha Investment, to accept the turnover, they were contractually obligated to do so under the facts as alleged by Vinewood. If Alpha Investment or DMI refused to accept the turnover, that is a breach of contract. Vinewood alleges that the representation caused it delay and prevented it from otherwise

resolving the matter, but under the facts as alleged by Vinewood there is no other way to resolve a default under that agreement. Vinewood has simply failed to explain how this representation, which merely mirrors a contractual obligation already in place, was itself harmful.

And as for McGuire's statement that documents would be prepared to effect the turnover, Vinewood has not alleged that the representation caused it any damages. Additionally, there is no allegation that Cox Smith was involved in this statement. Consequently, the Court will grant judgment on the pleadings as to the fraud claim against Cox Smith as well.

D. Motion for Sanctions (doc. #37)

The Sheppard Mullin defendants seek sanctions against Vinewood on multiple grounds. First, the Sheppard Mullin defendants argue that Vinewood's response to their motion to dismiss misrepresents the record from Vinewood I. Second, they argue that Vinewood II was filed to harass them and to delay and hinder Vinewood I. Relatedly, the Sheppard Mullin defendants posit that Vinewood has argued that it is not seeking to disqualify the Sheppard Mullin defendants from acting as defense counsel in Vinewood I, yet Vinewood has asserted that such representation is a basis for damages in connection with its claim for breach of fiduciary duty.

In seeking sanctions, the Sheppard Mullin defendants invoke Federal Rule of Civil Procedure 11 and Texas Rule of Civil Procedure 13. Federal Rule 11 provides, in relevant part, that "by signing, filing, submitting, or later advocating [a pleading, written motion, or other paper] an attorney . . . certifies that to the best of the [his] knowledge, information, and belief, formed after an inquiry reasonable under the circumstances [that] 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." Further, the attorney certifies that the pleading has not been filed for an improper purpose, such as harassment or delay. Texas Rule 13, which is relevant to this case because it was removed from a Texas court, see Tompkins v. Cyr, 202 F.3d 770, 787 (5th Cir. 2000), provides "[t]he signatures of attorneys or parties constitute a certificate by them that they have read the pleading, motion, or other paper; that to the best of their knowledge, information, and belief formed after reasonable inquiry the instrument is not groundless and brought in bad faith or groundless and brought for the purpose of harassment." These rules are interpreted similarly, and both are essentially meant to prohibit and punish baseless filings or filings made for improper purposes, such as harassment or delay. Cf. Monroe v. Grider, 884 S.W.2d 811, (Tex. App. — Dallas 1994, writ denied) ("We look to cases interpreting Federal Rule 11 to interpret Rule 13.").

Vinewood, in its response to the motion to dismiss, argues that the Sheppard Mullin defendants' delay-based affirmative defenses, such as waiver, laches, and estoppel, are not applicable because Vinewood acted within days of the Sheppard Mullin defendants' appearing as defense counsel in Vinewood I. Vinewood points to the docket in Vinewood I, noting that the Sheppard Mullin defendants formally appeared as defense counsel on November 19, 2009. Vinewood II was filed only six days later. According to Vinewood, it believed that the Sheppard Mullin defendants purposefully chose not to appear so that they could act as counsel for DMI and related entities while avoiding creating a conflict of interest. Vinewood notes that the Sheppard Mullin defendants had previously formally appeared in other proceedings on behalf of DMI and related entities but did not do so in Vinewood I. The Sheppard Mullin defendants are, according to Vinewood, important witnesses in Vinewood I. Vinewood insists that it believed by not formally appearing in Vinewood I, the Sheppard Mullin defendants were ensuring their availability to be called as witnesses in Vinewood I while representing DMI and related entities to the extent possible. Moreover, Vinewood points out that in related litigation a district court refused to sanction its counsel, Geoffrey Harper and Fish Richardson, P.C., because these attorneys had not formally appeared before that court. Only when the Sheppard Mullin defendants formally appeared as defense counsel in Vinewood I was it clear to Vinewood that the Sheppard Mullin defendants were representing DMI and related entities against Vinewood's interests and that Vinewood

could take action against the Sheppard Mullin defendants. Thereafter, Vinewood explains, rather than address the apparent conflict in Vinewood I and possibly delay that already protracted case further, it filed a separate suit against the Sheppard Mullin defendants to redress the breach of duty caused by the adverse representation.

Simply put, Vinewood's arguments are specious, disingenuous, and further cause for sanction. Vinewood would have this Court believe that it, a sophisticated business entity that throughout this litigation has been represented by competent counsel, did not recognize the potential for a conflict of interest when the notice of removal in this case listed the Sheppard Mullin defendants as counsel for the Vinewood I defendants. Vinewood would have this Court accept that Vinewood believed that so long as the Sheppard Mullin defendants did not formally appear in Vinewood I there was no conflict of interest and that it could not seek the disqualification of the Sheppard Mullin defendants. In fact, Vinewood would have the Court believe that by acting as defense counsel but not formally appearing, the Sheppard Mullin defendants were acting consistently with their alleged attorney-client relationship with Vinewood and in Vinewood's interest by keeping themselves available as witnesses in Vinewood I.

Aside from being farcical, these positions contradict others taken by Vinewood. Vinewood has insisted throughout this case and in Vinewood I that it is not seeking disqualification. Why then would Vinewood's ability to seek disqualification be a justification for their delay in complaining of the Sheppard Mullin defendants' involvement in Vinewood I or indicative of Vinewood's motives in filing Vinewood II? Vinewood does not explain. Vinewood does not cite a single authority, nor has the Court found one, for the proposition that an attorney must formally appear in a case in order for his representation of a client to be adverse to, and potentially in breach of his duty to, a former client. And in pinpointing the date of the Sheppard Mullin defendants' formal appearance, the date in Vinewood's opinion that it could finally take action, Vinewood would have the Court look to the docket entries in Vinewood I without looking to the pleadings themselves. Vinewood does so without even attempting to explain or distinguish case law that clearly allows the Court to take notice of public records and filings in related proceedings.

The related case cited by Vinewood in which Harper and Fish Richardson were spared sanctions is unpublished and the Court has not been provided with a copy. A review of the appellate opinion affirming that decision shows that the case does not deal with sanctions under Rule 11 or Texas Rule 13, but with civil contempt, and the basis for the court's ruling was not that Harper had not appeared but that Harper was not subject to and was unaware of the rules that he was alleged to have violated. See generally Islamic Inv. Co. of the Gulf (Bah.) Ltd. v. Harper, 545 F.3d 21 (1st Cir. 2008). The case is wholly inapposite and Vinewood's reliance on it only strengthens the case for sanctions.

Moreover, Vinewood alleges that its privileged information had been used against it for years and acknowledges in its response brief that the Sheppard Mullin defendants were "intimately involved" in Vinewood I. Vinewood cannot seriously expect this Court to believe that Vinewood and its attorneys were of the opinion that Vinewood was powerless to seek relief from representation that, assuming there was an attorney-client relationship between the Sheppard Mullin defendants and Vinewood, was clearly a conflict of interest, amounted to a breach of fiduciary duty, and involved the disclosure of Vinewood's privileged information until the Sheppard Mullin defendants formally appeared. Again, simply frivolous.

Further, even if a formal appearance by counsel were necessary, the Sheppard Mullin defendants formally appeared as DMI's counsel in an appeal taken in Vinewood I. This occurred some twenty months before Vinewood II was filed.

Vinewood has represented to this Court on a number of occasions that by filing this case it is not seeking to have the Sheppard Mulling defendants disqualified from Vinewood I. Indeed, Vinewood explains that it filed Vinewood II as a separate lawsuit in order to avoid interference with Vinewood I. But, in stark contrast to this attempt to explain its actions as driven by noble intent, Vinewood has informed the Sheppard Mullin defendants that it considers their continued involvement in Vinewood I to be a basis for additional liability under its breach-of-fiduciary-duty claim. (Vinewood I, doc. #215, App. at 4, 14.)

The timing of Vinewood's filing of Vinewood II further supports sanctions. As noted, Vinewood I has dragged on with little progress since May 2006. Just as discovery began in earnest and as scheduling deadlines approached, Vinewood filed the suit further delaying that case. Vinewood's explanations both for its delay and the merits of its claims are groundless. Cf. Atasi Corp., 847 F.2d at 832; see also United States Fire Ins. Co., 50 F.3d at 1315 (stating former client's "tortured justification" for disqualification was more suggestive of a tactic to delay and harass than a conscientious professional concern).

The foregoing shows that Vinewood has not made a good-faith inquiry into the facts and law underlying its claims, has not honestly presented the facts and law to this Court, has taken blatantly contradictory and frivolous positions in pursuit of those claims, and filed this suit chiefly to harass the Sheppard Mullin defendants and hinder Vinewood I. The litigation between these parties has been plagued by gamesmanship and frivolous tactics. Hopefully, the Court's ruling today will be a step in putting an end to that.

Accordingly, the Court will grant the motion for sanctions. A sanction "must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated." Fed.R.Civ.P. 11(c)(4). In the Court's view, the most appropriate sanction is the dismissal of Vinewood's case against the Sheppard Mullin defendants and Cox Smith. Vinewood I cannot proceed until this case, Vinewood II, is disposed of. Given that the circumstances of this case indicate it was filed merely to delay Vinewood I, dismissal so that Vinewood I may proceed seems to the Court to be the most appropriate sanction. Thus, in addition to the reasons set forth in the discussion of the motion to dismiss and the motion for judgment on the pleadings, Vinewood's case is dismissed as a sanction under Rule 11.

Additionally, as permitted by Rule 11, the Court will award attorneys' fees incurred in the briefing of this motion to the Sheppard Mullin defendants. See Fed.R.Civ.P. 11(c)(2). No later than twenty-one days from the date of this order, the Sheppard Mullin defendants must file a brief discussing the reasonableness of their attorneys fees under the lodestar framework employed in the Fifth Circuit. The motion must be accompanied by evidence detailing and supporting the fees requested. Vinewood may file a response twenty-one days after the initial brief is filed and the Sheppard Mullin defendants may file a reply fourteen days after the response is filed.

E. Motion to Consolidate (doc. #3)

Finally, the Sheppard Mullin defendants note that as part of the motion to transfer Vinewood II to this Court they also sought consolidation with Vinewood I. Because all of the claims in Vine-wood II have been dismissed, the Court will deny this motion.

III. Conclusion

With the foregoing, the Court DENIES the motion to compel arbitration of Vinewood's fraud claims. The Court GRANTS the Sheppard Mullin defendants' motion to dismiss as to Vinewood's claim for breach of fiduciary duty and as to both fraud claims. The Court GRANTS Cox Smith's motion for judgment on the pleadings. Finally, the Court GRANTS the motion for sanctions, and as part of this ruling the Court, as an alternative basis to the analysis of the motion to dismiss and the motion for judgment on the pleadings, ORDERS DISMISSED Vinewood's case against the Sheppard Mullin defendants and Cox Smith.