American Lending Center Holdings Inc. vs. Zhou

the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief. Code Civ. Proc. § 128.7(b).

If a pleading does not meet those conditions, a party may bring a motion for sanctions. Code Civ. Proc. § 128.7(c)(1). The purpose of permitting such a motion is remedial, not punitive. The goal is not to punish the offender but to promote compliance and deter frivolous filings. Malovec v. Hamrell (1990) 70 Cal.App.4th 434, 440.

The sanction moved for and imposed “may consist of, or include, directives of a nonmonetary nature, an order to pay a penalty into court, or, if imposed on motion and warranted for effective deterrence, an order directing payment to the movant of some or all of the reasonable attorney’s fees and other expenses incurred as a direct result of the violation.” Code Civ. Proc. §128.7(d). In addition, but as a separate matter apart from sanctions for violation of Code Civ. Proc. §128.7(b), “if warranted, the court may award to the party prevailing on the motion the reasonable expenses and attorney’s fees incurred in presenting or opposing the motion.” Code Civ. Proc. §128.7(c)(1).

Notice of the motion shall be served as provided in Code of Civil Procedure section 1010 but shall not be filed with the court unless, within 21 days after service of the motion, the challenged pleading is not withdrawn or appropriately corrected. Id. At the time of such service, the motion must set forth the hearing date. Galleria Plus, Inc. v. Hanmi Bank (2009) 179 Cal.App.4th 535, 538. There is no requirement that the motion be served again upon filing with the court. Code Civ. Proc. § 128.7(c)(1).

If, after notice and a reasonable opportunity to respond, the court determines that Code of Civil Procedure section 128.7(b) has been violated, the court may, subject to the certain conditions, impose an appropriate sanction upon the attorneys, law firm, or parties that have violated section 128.7(b) or are responsible for the violation. Code Civ. Proc. § 128.7(c). The determination of violation is made under an objective standard. Bockrath v. Aldrich Chem. Co., Inc. (1999) 21 Cal.4th 71, 82. But whether, upon such a finding, the court should grant sanction is a matter for the court’s discretion.

Kojababian v. Genuine Home Loans, Inc. (2009) 174 Cal.App.4th 408, 420-421 (where, after considering defendants’ sanctions motion, the trial court ruled that “[t]he motion is [d]enied. Based on the totality of the file and record in this case, moving parties [defendants] have not carried their high burden sufficient to allow the granting of the motion.”) (emphasis added).

A claim is “objectively unreasonable” if any reasonable attorney would agree that it is totally and completely without merit. Peake v. Underwood (2014) 227 Cal.App.4th 428, 440.

“Because our adversary system requires that attorneys and litigants be provided substantial breathing room to develop and assert factual and legal arguments, sanctions should not be routinely or easily awarded even for a claim that is arguably frivolous. Courts must carefully consider the circumstances before awarding sanctions.” Id. at 448.

Further, there is law to the effect that a sanctions motion based on contentions of false allegation of fact made without sufficient investigation or basis should be made after discovery on, and even determination of the merits of, the disputed allegation so that the record of what happened is clear. See, e.g., Baskin v. Lagone (S.D.N.Y. 1993) 1993 WL 59781, 6; Bomar Resources, Inc. v. Sierra Rutile Ltd (S.D.N.Y. 1991) 1991 WL 4544 (“The Complaint has been sustained, however, and the Court finds that any motion for sanctions at this time is premature”); Chesterton v.

Chesterton (D.Mass. 1990) 1990 WL 150066, Fed. Sec. L. Rep. P 95,638 (“Opposition to the Motion to Amend is not the opportune time to judge the veracity of plaintiffs’ amended complaint. Defendants' request for Rule 11 sanctions are premature.”). See also Li v. Majestic Industry Hills, LLC. (2009) 177 Cal. App. 4th 585, 595 (CCP 128.7 based on FRCP Rule 11 and federal cases are authority).

Code of Civil Procedure section 128.7 should be utilized only in “the rare and exceptional case where the action is clearly frivolous, legally unreasonable or without legal foundation, or brought for an improper purpose.” (Operating Engineers Pension Trust v. A-C Co. (9th Cir. 1988) 859 F.2d 1336, 1344.) “Because our adversary system requires that attorneys and litigants be provided substantial breathing room to develop and assert factual and legal arguments, [section 128.7] sanctions should not be routinely or easily awarded even for a claim that is arguably frivolous” (Peake, supra, 227 Cal.App.4th at p. 448), and instead “should be ‘made with restraint.’ ” 9 (Peake, at p. 448.) Indeed, even if a plaintiff could not successfully defend against either demurrer or summary judgment, that alone is insufficient to support the sanction of dismissal. (Ibid.)

Kumar v. Ramsey (2021) 71 Cal.App.5th 1110, 1120–1121 (reversing order awarding sanctions) (bold added).

The issue on a section 128.7 sanctions motion is “ ‘not merely whether the party would prevail on the underlying factual or legal argument,’ but rather whether any reasonable attorney would agree that the claim is totally and completely without merit. [Citation.] Hence, the evidentiary burden to escape sanctions under section 128.7 is light.” Id. at 1126 (bold added). A plaintiff need only make a sufficient evidentiary showing to demonstrate that he made a reasonable inquiry into the facts and entertained a good faith belief in the merits of the claim; he “need not [have] amass[ed] even enough evidence to create a triable issue of fact as would be required” to overcome a motion for summary judgment, or allege a valid cause of action, as required to overcome a demurrer. Ibid.

Discussion

Defendant contends Plaintiff’s complaint was filed without adequate evidentiary support and, thus, for an improper purpose. He contends that the complaint’s own allegations, taken together, demonstrate that Plaintiff’s claims are internally inconsistent, contradicted by the very facts Plaintiff pleads, and were filed not to vindicate legitimate legal rights but to coerce Defendant into forfeiting his ownership interest in ALCH.

More specifically, Defendant points to the allegations that even while investigating him Plaintiff loaned him significant amounts of money on favorable terms and even gifted him with $100,000. According to Defendant, this defies reason and shows the frivolity of the complaint. Similarly, Defendant finds it unbelievable that, as alleged, Plaintiff paid Youtang $1.7 million without verification – beyond Defendant -- of its status and operations. Defendant further argues that the forgery allegations are implausible given the size of Plaintiff and the regulatory scheme under which it operated.

Defendant contends that Plaintiff has refused to produce supporting documentation. [See also Carle Decl. (ROA #23), ¶¶ 6-9.] And, finally, Defendant argues that Plaintiff has failed sufficiently to allege its fraud cause of action. He argues that all of the above shows the complaint was filed with an improper purpose.

Defendant has not produced any evidence, such as his own declaration, refuting the allegations of the complaint. He relies solely on his argued incredulity that Plaintiff, as the entity it is, could have acted as alleged in the complaint.

In opposition, Plaintiff’s counsel declares that prior to retaining counsel Plaintiff completed its internal investigation, including

contacting many of the investors that Defendant claimed were sourced by an entity called Youtang Overseas (Hong Kong) Consulting Co., Ltd. (“Youtang”). Each investor who responded stated that they had never heard of Youtang. Instead, they communicated only with Defendant regarding their ALCH investment. ALCH had also obtained evidence that Youtang was not a registered legal entity when it entered into the 2022 Procurement Agreement. [Bradley Decl. (ROA #75), ¶ 4.] Further, when it terminated Defendant Plaintiff offered to settle its claims against him but he refused. [Id., 5.]

Counsel also notes that prior to filing this action, Plaintiff, represented by current counsel, defeated Defendant’s attempts to obtain unemployment benefits. Throughout that process, ALCH explained to EDD and the California Unemployment Insurance Appeals Board the results of its internal investigation of Defendant’s conduct, as alleged in its complaint in this action. Defendant’s request was denied at each level due to his misconduct. [Bradley Decl., ¶ 6.]

Counsel also disputes Defendant’s description of communications and course of events between counsel, including proposed and actual exchanges of information. [Bradley Decl., ¶¶7-21.] Counsel declares Plaintiff has produced almost 400 pages of documents, including screen shots of ALCH’s communications with the investors at issue, in which the investors confirm they have never heard of Youtang and, instead, had all communications through Defendant. The production also contains documents and information about Youtang’s formation. [Id, ¶¶ 12, 20.]

In weighing all of the above, the court first notes that Defendant’s arguments about the implausibility of Plaintiff’s allegations do no establish that no reasonable attorney would fail agree that the complaint is totally and completely without merit. Peake v. Underwood (2014) 227 Cal.App.4th 428, 440. There are a number of scenario’s about the management or structure of Plaintiff where Plaintiff’s allegations would make sense. Nor has Defendant buttressed his arguments with his own evidentiary showing.

Further, Plaintiff has submitted evidence that it and its counsel made a reasonable inquiry into the facts and entertained a good faith belief in the merits of the claim. There is the investigation itself, but also success – on the same facts asserted here – in defeating Defendant’s application for unemployment insurance. [Bradley Decl., ¶¶ 4, 6.]

Finally, it is early in the case. Plaintiff should be given an opportunity to develop its case and sharpen its pleadings in response to the pending demurrer and motion to strike. At this point, it is too soon to

judge Plaintiff’s case as one of the “rare and exceptional case where the action is clearly frivolous, legally unreasonable or without legal foundation, or brought for an improper purpose.” Kumar v. Ramsey (2021) 71 Cal.App.5th 1110, 1120.

Accordingly, the motion is denied. Including the above, and also based on the totality of the file and record in this case, Defendant has not carried his high burden sufficient to allow the granting of the motion. Kojababian v. Genuine Home Loans, Inc. (2009) 174 Cal.App.4th 408, 420-421.

Moving party to give notice.

2 Brown vs. Podlubny

2025-01488249 Motion to Compel Further Responses to Form Interrogatories Motion to Compel Further Responses to Form Interrogatories Motion to Compel Further Responses to Special Interrogatories Motion to Compel Further Responses to Special Interrogatories Motion to Compel Production Motion to Compel Production

Defendant Dmitriy Vladimirovic Podllubny, aka Dmitriy Podlubnyy (“Defendant”), seeks an order compelling further responses to form interrogatories, set one, special interrogatories, set one, and requests for production, set one, propounded on Plaintiffs Justin Brown and Lana Brown (collectively, “Plaintiffs”). Defendant also seeks monetary sanctions in the amount of $3,623.30 against Plaintiffs and Plaintiffs’ counsel of record.

Defendant seeks an order compelling each plaintiff to serve further responses to form interrogatory numbers 4.1, 6.3, 6.5, and 7.3, special interrogatory numbers 11, 15, 17, 18, 20, 23, 25, 26, 28, 29, 31, 32, 33, 34, 36, 37, 38, 40, 41, 43, 44, 46, and 47, and request for production numbers 2-33.

Plaintiffs contend the motion is moot or reduced to a handful of residual issues after Plaintiffs twice supplemented the discovery at issue. (Opposition, 2:6-8; Luton Decl., ¶¶ 5, 6, 8, and 11, Exhibit 2.) Plaintiffs only provided a copy of the second set of Plaintiffs’ supplemental responses to Special Interrogatories and Requests for Production. Plaintiffs did not submit any evidence showing whether the following discovery was supplemented in the first set of supplemental responses served on April 15, 2026: form interrogatory numbers 4.1, 6.3, 6.5, and 7.3, special interrogatory numbers 18, 20, 32, 33, 34, 40, 44, and 47, and request for production numbers 5, 9,