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Rockwell Capital Partners Inc. v. CD International Enterprises, Inc.

United States District Court, District of Columbia

April 27, 2018



          CHRISTOPHER R. COOPER United States District Judge

         In 2016, CD International Enterprises (“CDII”) unsuccessfully sued Rockwell Capital Partners over a promissory note. Turning the tables, Rockwell now brings suit against CDII and its attorney-New Orleans sole practitioner Henry L. Klein-for various claims arising from the first lawsuit. CDII and Klein have filed a motion for judgment on the pleadings with respect to two of the claims: abuse of process and malicious prosecution. Because Rockwell fails to adequately plead those claims, the Court will dismiss them and stay the remaining claims, which are brought only against CDII, in light of the company's recent suggestion of bankruptcy.

         I. Background

         This suit stems from another case that this Court dismissed in 2016. To recap the basic facts of that case: CDII is a small, family-run trading company focused on Asian markets. In September 2015, Rockwell agreed to assume some of CDII's debt in exchange for a promissory note that permitted Rockwell to convert the debt into CDII stock at a discounted price. Compl. ¶¶ 22, 25. After Rockwell quickly began to exercise its conversion rights and sell its newly acquired stock at a profit, CDII's share price fell dramatically. Id. ¶¶ 31-36. CDII, represented by Henry Klein, then sued Rockwell, its principal, and two other defendants. CD International Enterprises, Inc. v. Rockwell Capital Partners, Inc., 16-cv-394. The complaint included claims that the promissory note was void due to lack of consideration and fraud; that the note was unenforceable as against public policy; that Rockwell violated the terms of the note by failing to provide notice to CDII prior to exercising its conversion rights; and that Rockwell wrongfully converted its CDII shares. Rockwell moved to dismiss. While Rockwell's motion was pending, CDII moved for partial summary judgment, moved to voluntarily dismiss a count of its complaint, moved for leave to file a restated opposition to the motion, moved to request an ex parte hearing on the restated opposition, and moved for leave to file limited requests for admissions. Id.

         The Court granted Rockwell's motion to dismiss on April 24, 2017. While noting that profiting at CDII's expense may well have been Rockwell's goal from the outset, the Court nonetheless concluded that “because Rockwell's actions were consistent with the parties' negotiated, written agreements, no cause of action lies.” CD Int'l Enterprises, Inc. v. Rockwell Capital Partners, Inc., 251 F.Supp.3d 39, 41 (D.D.C. 2017). Following dismissal, CDII filed a notice of appeal, which the D.C. Circuit recently dismissed for failure to prosecute.

         Which brings us to the current suit. On July 31, 2017, Rockwell filed a complaint alleging that CDII and Klein knew that their claims in the 2016 lawsuit “were not warranted by applicable law and that its alleged factual contentions were without evidentiary support.” Compl. ¶ 1. Rockwell also contends that CDII and Klein filed “frivolous motions” intended to drive up Rockwell's attorneys' fees and force it to loan additional money to CDII. Id. ¶¶ 2-4. Rockwell further alleges that CDII and Klein entered into agreements with other institutional investors both before and after filing the lawsuit that had “essentially the same or worse terms than [CDII] complained of against Rockwell” in the 2016 lawsuit, yet chose not to sue those investors. Id. ¶¶ 39-68. Finally, in support of its malicious prosecution claim, Rockwell claims that prospective business partners and clients expressed concerns about doing business with Rockwell as a result of the 2016 lawsuit, which led to it losing deals, revenue, and the “possibility of future transactions.” Id. ¶¶ 104-05.

         The complaint invokes the Court's diversity jurisdiction and includes five claims: tortious interference with contract and prospective economic advantage (against CDII); breach of contract (against CDII); breach of implied duty of good faith (against CDII); abuse of process (against CDII and Klein); and malicious prosecution (against CDII and Klein). Following a hearing on November 17, 2017, CDII and Klein filed a motion for judgment on the pleadings on Rockwell's abuse of process and malicious prosecution claims. And on February 7, 2018, CDII filed a “suggestion of bankruptcy, ” thus triggering the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362. By operation of the automatic stay, none of Rockwell's remaining claims may proceed against CDII.[1]

         II. Standard of Review

         In resolving a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), a court must “view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party.” Peters v. National R.R. Passenger Corp., 966 F.2d 1483, 1485 (D.C. Cir. 1992). A court “will grant a motion for judgment on the pleadings only if, after the close of the pleadings, no material fact remains in dispute, and the moving party is entitled to judgment as a matter of law.” Transworld Prods. Co. v. Canteen Corp., 908 F.Supp. 1 (D.D.C. 1995).

         III. Analysis

         A. Abuse of Process

         The crux of Rockwell's abuse of process claim is that CDII and Klein filed the 2016 lawsuit and subsequent “baseless motions” in order to force Rockwell to incur “extraordinary” legal expenses and ultimately “extort Rockwell into providing additional funds to CDII.” Opp'n at 7-8. As an indication of this supposed motive, Rockwell alleges that CDII and Klein chose not to sue other investors over “virtually identical” agreements because those investors, unlike Rockwell, were willing to continue funding CDII. Id. at 8.

         Courts in this jurisdiction have tended to take a restrictive view of abuse of process claims given their potential to limit “unfettered access to the courts” and to cause a “chilling and inhibitory effect on would-be litigants of justiciable issues.” Bannum, Inc. v. Citizens for a Safe Ward Five, Inc., 383 F.Supp.2d 32, 46 n.10 (D.D.C. 2005). To prevail on a claim for abuse of process under D.C. law, the moving party must demonstrate a “perversion of the judicial process and achievement of some end not contemplated in the regular prosecution of the charge.” Morowitz v. Marvel, 423 A.2d 196, 198 (D.C. 1980). An ulterior motive for using the judicial system is not alone a sufficient basis for an abuse of process claim. See, e.g., Houlahan v. World Wide Ass'n of Specialty Programs and Schools, 677 F.Supp.2d 195, 200 (D.C. 2010). Rather, Rockwell must allege that CDII and Klein misused the judicial process to seek relief beyond what “the system legitimately offered.” Bannum, 383 F.Supp.2d at 46. Stated differently, they must allege, in addition to an ulterior motive, “[s]ome act or threat directed to an immediate objective not legitimate in the use of process.” Restatement (Second) of Torts § 682 (1977). Such acts usually involve “some form of extortion . . . .” Scott v. District of Columbia, 101 F.3d 748, 755 (D.C. Cir. 1996) (adopting Restatement's formulation of abuse of process).

         Rockwell fails to adequately plead this second element of an abuse of process claim. The only affirmative acts that Rockwell alleges Klein and CDII took are initiating the suit in the first place and then filing “baseless” motions whose aim was to drive up Rockwell's litigation costs. That is not enough. The filing of the lawsuit is insufficient because under D.C. law “mere issuance of [] process is not actionable, no matter what ulterior motive may have prompted it; the gist of the action like in the improper use after issuance.” Morowitz, 423 A.2d at 198 (internal citation omitted) (emphasis added). And while filing vexatious pleadings could in some circumstances support an abuse of process claim, Rockwell alleges nothing to suggest that the motions CDII filed were anything but good faith (though mostly unsuccessful) efforts to obtain relief to which CDII believed it was entitled when it filed the motion.[2] Absent any other alleged threat or extortionate ...

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