Opinion
03 CIV. 2318 (DLC)
December 9, 2003
Henry and Deborah Norley, Killington, Vermont, for the Plaintiffs
David P. Lennon, Esq., Lennon Klein, P.C., White Plains, New York, for Defendant
OPINION AND ORDER
On April 3, 2003, Henry and Deborah Norley (collectively, "the Norleys") filed the instant action against HSBC Bank USA ("HSBC"), alleging violations of 42 U.S.C. § 1983 ("Section 1983"). The Norleys had previously sued HSBC in state court, alleging essentially identical violations of their rights. HSBC has filed a motion to dismiss for failure to state a cause of action and on the ground of res judicata. HSBC has also moved for the issuance of a permanent injunction and sanctions against the Norleys. In response, the Norleys filed a motion to amend their complaint to include new defendants and additional causes of action. The amended complaint relies on the same facts and transactions as were pled in the original complaint. For the reasons that follow, defendant's motion is granted in part, and plaintiffs' motion is denied. Background
All the facts in this Opinion are taken from the complaint and documents upon which the complaint relies, including two Opinions issued by the state court in previous lawsuits involving the Norleys. On December 10, 1999, Advanced Document Services Corporation ("ADSC"), a printing company owned and controlled by Henry Norley, executed two Promissory Notes with HSBC. The two loans, guaranteed by Henry Norley and the Advanced Document Services Corporation L.L.C. ("ADSC L.L.C."), totaled $175,000. After completing the transaction, HSBC deposited the full amount of the Promissory Notes into the Norleys' business checking account. As part of its repayment agreement with ADSC, HSBC regularly withdrew funds "in varied amounts" from the Norleys' business account. Approximately three years after taking out the loans, and allegedly as a direct result of HSBC's withdrawals, ADSC was unable to continue its day-to-day operations and closed. The Norleys liquidated their assets, and deposited the proceeds into their business account. HSBC subsequently withdrew all the remaining funds from that account. Over the course of their relationship with HSBC, the Norleys allege that HSBC withdrew approximately $296,000 from their business account.
The Promissory Notes were originally executed with the Republic National Bank of New York ("Republic"). On December 31, 1999, Republic merged with HSBC. The new entity, which retained the name HSBC, assumed all the rights and obligations of the two former banks. Republic and HSBC are referred to collectively as "HSBC".
On April 5, 2001, the Norleys received a formal notice from HSBC that $69,093.98 was still due on the loans. Because the Norleys had closed down ADSC and transferred their business records into storage, they could not verify the loan balances and did not respond to HSBC's requests. Having received no payment, on May 18, 2001, HSBC initiated a state court action to recover the unpaid balance on the loans ("the HSBC Action").
The HSBC Action
HSBC filed an action against ADSC, which had executed the loan agreements, and the Norleys and ADSC L.L.C. as the loans' guarantors. Upon receiving notice of the action, the Norleys discovered that Deborah Norley was also named in the suit as a guarantor. Deborah Norley's purported guaranty, however, was not notarized.
The Norleys answered HSBC's complaint pro se, but ADSC and ADSC L.L.P. failed to appear through counsel. The Norleys subsequently served HSBC with a request for information pursuant to the Fair Debt Collection Practices Act ("FDCPA"), and served a request on HSBC for admissions. HSBC did not respond to either request, but instead sought a default judgment against ADSC and ADSC L.L.P. and summary judgment against the Norleys.
In their opposition to HSBC's motion for summary judgment, the Norleys asserted several defenses. First, they claimed that HSBC was not a holder in due course because the loan agreements had been entered with Republic, HSBC's predecessor. Second, the Norleys alleged that the loan documents were invalid since they were not properly executed or notarized. Third, the Norleys claimed that HSBC violated the FDCPA by not providing information about the loans. The Norleys also accused HSBC of withholding evidence by not responding to their request for admissions.
By an order dated November 14, 2001, the state court entered a default judgment against ADSC and ADSC L.L.P. for failing to appear through counsel. Before HSBC's motion for summary judgment could be decided, however, the case was transferred to New York Supreme Court Justice Shirley Werner Kornreich ("Justice Kornreich"). Justice Kornreich approved a February 2, 2002 stipulation vacating the November 14 order. HSBC renewed its motion for a default judgment against ADSC and ADSC L.L.P., and for summary judgment against the Norleys.
In an Opinion issued on May 3, 2002 ("the May Opinion"), Justice Kornreich entered a default judgment against ADSC and ADSC L.L.P., and granted HSBC's motion for summary judgment. Justice Kornreich found that, by operation of law, HSBC's merger with Republic vested it with all of Republic's rights and obligations, therefore giving HSBC standing to sue the Norleys. Justice Kornreich also found that the loan agreements were valid, despite the fact that the guaranty executed by Deborah Norley was not notarized. Since Deborah Norley did not deny signing the guaranty, the court deemed the signature admitted. Justice Kornreich rejected the Norleys' allegation that HSBC violated the FDCPA, noting that the FDCPA does not apply to guaranty agreements in commercial transactions. Lastly, Justice Kornreich dismissed the Norleys' request for admissions as improper because the admissions sought legal conclusions and admissions as to material and ultimate issues.
Concluding that HSBC had established a prima facie case against the Norleys for liability on the loans, and that the Norleys had failed to present evidence to rebut such a finding, Justice Kornreich granted summary judgment for HSBC. Justice Kornreich appointed Special Referee Leslie S. Lowenstein ("Referee Lowenstein") to determine the amount of attorneys' fees owed by the Norleys to HSBC. On January 3, 2003, after holding a special hearing, Referee Lowenstein ordered the Norleys to pay approximately $40,000 in attorneys' fees.
The First Norley Action
On April 15, 2002, while the HSBC Action was still pending, the Norleys filed a parallel state court action against HSBC; two of its officers, Theresa Eaton ("Eaton") and Pamela Pickel ("Pickel"); and HSBC's counsel, David Lennon, Mark Klein, and Lennon Klein, P.C. (collectively, "Lennon"). The Norleys sought compensatory damages in the amount of $8,709,206.22 and unspecified punitive damages for breach of contract, violation of fiduciary responsibility, unfair trade practices, and "Deceptive Business Practice [and] Fraud in the Factum." In support of their claims, the Norleys pleaded facts identical to those they had asserted as defenses in the HSBC Action. Specifically, the Norleys claimed that there had been no consideration for the loans, that HSBC did not have standing to sue, that certain documents were forgeries or improperly executed, that HSBC had violated the FDCPA, and that HSBC improperly avoided discovery by breaching a stipulation wherein it had agreed to answer the Norleys' request for admissions. The Norleys also alleged that the defendants had violated their due process rights by conspiring to perpetrate a fraud on the court.
In an Opinion dated September 17, 2002 ("the September Opinion")/ Justice Kornreich dismissed the complaint with prejudice as to all defendants. The breach of contract claim against HSBC, Eaton, and Pickel was dismissed on the grounds of collateral estoppel. Justice Kornreich also rejected the breach of contract claim against Lennon because the Norleys never alleged that Lennon was a party to the loan agreements. The court dismissed the Norleys' breach of fiduciary duty claim against HSBC, Eaton, Pickel, and Lennon for failure to state a cause of action. In addition, the court rejected the unfair trade practices claim because the Norleys had failed to specify what representations and advertisements by HSBC were purportedly false. Lastly, Justice Kornreich rejected the "catch-all" cause of action for "Deceptive Business Practice [and] Fraud in the Factum." Justice Kornreich found that the Norleys had failed to specify the nature of the fraud and what role was played by the different defendants in the purported scheme.
Justice Kornreich declined to issue sanctions. She noted that courts "are cautious" in imposing sanctions on pro se litigants. Nevertheless, she warned that she would "not hesitate to sanction [Henry] Norley in the future should he persist in filing meritless and duplicative lawsuits against his creditors." In her September Opinion, Justice Kornreich informed the Norleys that any disagreements they might have with the court's Opinions would be properly raised on appeal, and not by the filing of duplicative lawsuits. The Second Norley Action (The Instant Action)
In the instant action, filed on May 3, 2003, the Norleys allege that HSBC violated Section 1983 by improperly prosecuting the HSBC Action, and by conspiring with Justice Kornreich, Referee Lowenstein, Lennon, Eaton, and Pickel to violate the Norleys' civil rights. HSBC is the sole defendant, but the pleading also seeks monetary damages from Lennon and its named partners, and requests sanctions against the state judge for abusing her authority and violating judicial ethics, and for "intentionally with malice and aforethought [sic]" seeking to "injure [the Norleys] for defending themselves."
On September 9, HSBC moved to dismiss the action, requested an injunction against further lawsuits, and sought sanctions. The Norleys opposed the motions. On November 17, after HSBC's motion had been fully briefed, the Norleys sought leave to amend their complaint. In the proposed amended complaint, HSBC is removed as a defendant, and Lennon, Eaton, Pickel, Justice Kornreich and Referee Lowenstein are substituted as defendants. The Norleys' amended complaint would add a conspiracy claim under 42 U.S.C. § 1985, and state common law claims for fraud, tampering with evidence, and obstruction of justice.
Discussion
HSBC has moved to dismiss the complaint. The Norleys seek to amend the complaint. HSBC also moves for an injunction and sanctions. Each of these motions will be addressed in turn.
1. Motion to Dismiss
To dismiss an action pursuant to Rule 12(b)(6), a court must determine that "it appears beyond doubt, even when the complaint is liberally construed, that the plaintiff can prove no set of facts which would entitle him to relief." Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997) (citations omitted). In construing the complaint, the court must "accept all factual allegations in the complaint as true and draw inferences from those allegations in the light most favorable to the plaintiff." Id. "Given the Federal Rules' simplified standard for pleading, a court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations."Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 514 (2002) (citation omitted). Where a party is proceeding pro se, the court has an obligation to "read the pleadings . . . liberally and interpret them to raise the strongest arguments that they suggest."McPherson v. Coombe, 174 F.3d 276, 279 (2d Cir. 1999) (citation omitted).
The complaint pleads a single claim against HSBC for a violation of Section 1983. The Norleys allege HSBC conspired with others to violate their civil rights.
In order to state a claim under Section 1983, plaintiffs must allege that they were injured by "either a state actor or a private party acting under color of state law," Ciambriello v. County of Nassau, 292 F.3d 307, 323 (2d Cir. 2002), and that such conduct deprived the plaintiffs of a right, privilege, or immunity secured by the Constitution or laws of the United States, Dwares v. City of New York, 985 F.2d 94, 98 (2d Cir. 1993). "To state a claim against a private entity on a section 1983 conspiracy theory, the complaint must allege facts demonstrating that the private entity acted in concert with the state actor to commit an unconstitutional act." Ciambriello, 292 F.3d at 324 (citation omitted). As the Second Circuit has observed, "[a] merely conclusory allegation that a private entity acted in concert with a state actor does not suffice to state a § 1983 claim." Id. Plaintiffs must describe "the factual basis necessary to enable [the] defendant intelligently to prepare [its] defense." Id. at 325 (citation omitted).
The Norleys' Section 1983 claim appears to allege that HSBC's attorneys and officers acted under color of state law by conspiring with Justice Kornreich and Referee Lowenstein to deprive the Norleys of due process. The Norleys' conclusory allegations, however, do not state a Section 1983 claim against HSBC. The Norleys' pleadings are devoid of any specificity regarding the alleged conspiracy. The fact that Justice Kornreich granted or denied a litigant's motion, or that Referee Lowenstein arrived at a figure for an award of attorneys' fees when given that assignment by the court, are insufficient bases from which to infer the existence of a conspiracy between judicial officers and a litigant.
As explained below, Referee Lowenstein is a state actor.
The Norleys' oppose the HSBC motion principally by submitting the transcripts of the state court proceedings and exhibits offered by HSBC and the Norleys during those proceedings, including a letter written by an "expert" for the Norleys. The letter, which was rejected by the state court, purports to show that HSBC committed a fraud on the Norleys. Even if these documents were properly considered in connection with the motion to dismiss, they do not cure the deficiency already noted in the pleading of the Norleys' Section 1983 claim. They do not present facts demonstrating that HSBC acted in concert with any state actor to violate the Norleys' rights.
Similarly, the Norleys' attempt to amend their complaint to add David Lennon, Mark Klein, Eaton, and Pickel as defendants in the Section 1983 claim would not cure this deficiency. The new defendants are all private parties against whom the Norleys make the same conclusory and vague assertions. As discussed, supra, conclusory allegations are not sufficient to state a claim under Section 1983.
2. Dismissal with Prejudice
Following the completion of briefing on the motion to dismiss, the Norleys moved to amend their complaint to add violations of 42 U.S.C. § 1985 ("Section 1985") and New York State common law. Their proposed amended pleading would no longer name HSBC as a defendant. In its place, the Norleys name Eaton, Pickel, David Lennon, Mark Klein, Justice Kornreich, and Referee Lowenstein as defendants.
Appended to the Norleys' notice of motion is the proposed amended complaint, an affidavit in support of the motion by a person named Joseph A.F. Sadowski, who is neither a party to the action nor an attorney, and copies of transcripts from the state court proceedings.
The defendant requested a stay of the motion to amend until after a decision on its motion to dismiss the complaint has been rendered. It points out that the motion to dismiss asks for dismissal with prejudice and that it is accompanied by a motion for an injunction and sanctions. On November 26, 2003, the Court advised the parties through a memo endorsement that a scheduling order would issue if further submissions were necessary.
The motion to amend is, in effect, a sur-reply by the plaintiffs on the motion to dismiss. It is relevant to the defendant's request that the dismissal be with prejudice. While it should have accompanied the plaintiffs' opposition to the motion to dismiss, it will nonetheless be considered.
The proposed amended complaint adds no new facts. The only modification to the original complaint is the addition of the same defendants whom the Norleys had previously sued in state court, and of two judicial officers. This proposed amended pleading does not salvage the lawsuit. The judicial officers are protected by absolute immunity, the Norleys have not pleaded a Section 1985 violation, and res judicata protects all of the private actors named by the Norleys.
a. Judicial Immunity
The addition of Justice Kornreich and Referee Lowenstein in the amended complaint is barred by the doctrine of judicial immunity. A judge is absolutely immune from civil liability for her judicial acts.Mireles v. Waco, 502 U.S. 9, 11 (1991); Tucker v. Outwater, 118 F.3d 930, 932 (2d Cir. 1997). "Although unfairness and injustice to a litigant may result on occasion, it is a general principle of the highest importance to the proper administration of justice that a judicial officer, in exercising the authority vested in [her], shall be free to act upon [her] own convictions, without apprehension of personal consequences to [herself]." Mireles, 502 U.S. at 10 (citation omitted). Judicial immunity is immunity from suit, and is not limited to immunity from an assessment of damages. Id. at 11. In addition, "judicial immunity is not overcome by allegations of bad faith or malice," nor by a judicial action taken in error or in excess of authority. Id. Because both Justice Kornreich and Referee Lowenstein enjoy absolute immunity for their official acts, any claims against them based on their handling of the state court actions would have to be dismissed.
Referee Lowenstein is properly treated as a judicial officer for purposes of this action. "Judges have absolute immunity not because of their particular location within the Government but because of the special nature of their responsibilities." Butz v. Economou, 438 U.S. 478, 511 (1978); Young v. Selsky, 41 F.3d 47, 51 (2d Cir. 1994). Thus, absolute judicial immunity has been extended to individuals performing duties "closely associated with the judicial process." Cleavinger v. Saxner, 474 U.S. 193, 200 (1985). Referee Lowenstein was appointed by Justice Kornreich to decide the amount of attorneys' fees owed to HSBC by the Norleys after losing the HSBC Action. Referee Lowenstein heard direct testimony, cross-examination, and opening and closing statements. She also ruled on the admissibility of evidence at the hearing.
b. Section 1985
The Norleys' amended complaint also fails to state a claim. Section 1985 of Title 42, United States Code, provides in relevant part that:
If two or more persons in any State . . . conspire . . . for the purpose of depriving, either directly or indirectly, any person or class of persons of the equal protection of the laws . . . the party so injured or deprived may have an action for the recovery of damages occasioned by such injury or deprivation, against any one or more of the conspirators.42 U.S.C. § 1985(3). Section 1985 creates no substantive rights, but merely provides a remedy for conspiracies to violate a person's right to equal protection of the laws. See United Bhd. of Carpenters Joiners of Am., Local 610. AFL-CIO v. Scott, 463 U.S. 825, 833 (1983); Great Am. Fed. Sav. Loan v. Novotny, 442 U.S. 366, 372 (1979). To assert a claim under Section 1985, a plaintiff must allege that the defendants have, with racial or other class-based discriminatory animus, conspired to deprive the plaintiff of a constitutional or other federal right.LeBlanc-Sternberg v. Fletcher, 67 F.3d 412, 426-27 (2d Cir. 1995); Spencer v. Casavilla, 903 F.2d 171, 175 (2d Cir. 1990). Allegations of conspiracy must be pled with particularity and will not withstand a motion to dismiss if they are conclusory and vague.Ciambriello, 292 F.3d at 325.
At no point in the Norleys' amended complaint do they assert that the defendant discriminated against them because of their race or other class-based characteristic. In addition, the Norleys' proposed amended pleading is devoid of any particularity regarding the alleged conspiracy. Thus, any Section 1985 claim asserted in the Norleys' amended complaint would have to be dismissed for failure to state a cause of action.
c. State Law Claims and Res Judicata
The state common law claims asserted in the Norleys' proposed amended complaint would be barred by the doctrine of res judicata. Under the Full Faith and Credit Act, "judicial proceedings of any court of any [ ] State . . . shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." 28 U.S.C. § 1738. Thus, to determine the preclusive effect of a state court judgment, "federal courts . . . are required to apply the preclusion law of the rendering state." Conopco, Inc. v. Roll Int'l, 231 F.3d 82, 87 (2d Cir. 2000). So long as the state court proceeding comported with due process, "every federal court must afford the final judgment entered therein the same preclusive effect it would be given in the courts of that state." Id.
New York has adopted a transactional analysis approach to res judicata. Yoon v. Fordham Univ. Faculty and Administrative Retirement Plan, 263 F.3d 196, 200 (2d Cir. 2001). Pursuant to this approach, "once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy." Id. (citing O'Brien v. City of Syracuse, 445 N.Y.S.2d 687, 688 (1981)). This principle applies so long as the parties had a "full and fair opportunity" to litigate the claim. Vogel v. Board of Educ. for Dunkirk City School Dist., 686 N.Y.S.2d 205, 206 (3d Dep't 1999).
In support of their state law claims, the Norleys allege the same facts that they pleaded in the two state court actions. Specifically, the Norleys allege that Deborah Norley's guaranty was invalid; that there was no consideration for the two loans; that David Lennon and Mark Klein, as HSBC's attorneys, failed to comply with their discovery requests and violated an oral stipulation in which they promised to answer the Norleys' request for admissions. All of these claims were fully and fairly litigated in the state court, which rendered a judgment on the merits. Accordingly, any state common law claims arising out of the same facts and transactions, even if pleaded in a federal action, would be dismissed with prejudice on the ground of res judicata.
In sum, the Norleys' proposed amended complaint would not cure the deficiencies in their complaint. The defendant's request for a dismissal of the complaint with prejudice is granted.
3. HSBC's Request for an Injunction
HSBC has requested a permanent injunction enjoining" plaintiffs from bringing further lawsuits against HSBC, its officers, or its counsel. An injunction is appropriate.
[D]istrict courts have the power and the obligation to protect the public and the efficient administration of justice from individuals who have a history of litigation entailing vexation, harassment and needless expense to other parties and an unnecessary burden on the courts and their supporting personnel.Lau v. Meddaugh, 229 F.3d 121, 123 (2d Cir. 2000) (per curiam) (citation omitted). The issuance of a filing injunction is appropriate when a plaintiff "abuses the process of the Courts to harass and annoy others with meritless, frivolous, vexatious or repetitive proceedings." Id. In determining whether or not to restrict a litigant's future access to the courts, a court should consider the following factors:
(1) the litigant's history of litigation and in particular whether it entailed vexatious, harassing or duplicative lawsuits; (2) the litigant's motive in pursuing the litigation, e.g., does the litigant have an objective good faith expectation of prevailing?; (3) whether the litigant is represented by counsel; (4) whether the litigant has caused needless expense to other parties or has posed an unnecessary burden on the courts and their personnel; and (5) whether other sanctions would be adequate to protect the courts and other parties.Safir v. U.S. Lines. Inc., 792 F.2d 19, 24 (2d Cir. 1986). The ultimate question to be answered by the court is "whether a litigant who has a history of vexatious litigation is likely to continue to abuse the judicial process and harass other parties." Id. The "unequivocal rule" in this Circuit, however, is that the district court may not impose a filing injunction on a litigant "without providing the litigant with notice and an opportunity to be heard." Lau, 229 F.3d at 123 (citation omitted); see also MLE Realty Assoc. v. Handler, 192 F.3d 259, 261 (2d Cir. 1999).
The history of litigation in this case shows a pattern of duplicative and harassing conduct by the Norleys. This action is the second lawsuit filed by the Norleys against HSBC, and, if the amended complaint were accepted, would be the second lawsuit against David Lennon, Mark Klein, Lennon Klein, P.C., Theresa Eaton, and Pamela Pickel. The state and federal lawsuits have named the same defendants and have repeated the same claims arising out of the same events. The Norleys' claims against these defendants have already been dismissed with prejudice by a state court. The state court issued a stern warning to the Norleys against the filing of another lawsuit in this case, and advised them that the proper avenue for registering their disagreement with the court's rulings would be an appeal to the New York Appellate Division. The Norleys filed this federal lawsuit in disregard of the state court's explicit admonition. The only modification made by the Norleys to the instant action is the proposed addition of Justice Kornreich and Referee Lowenstein, both of whom are protected by judicial immunity, and meritless Section 1985 and state law claims.
It is true that the Norleys are appearing pro se It cannot be said, however, that the Norleys have shown good faith in pursuing this litigation. Given this history, lesser sanctions, including the imposition of a fine, would be ineffective in curbing their abuse of the court system and preventing the infliction of additional burdens on the defendant.
This federal litigation is clearly duplicative and abusive. An injunction is therefore appropriate to prevent harassment of HSBC, its officers and attorneys, through abuse of the legal system. The Norleys have received notice and an opportunity to be heard on the request made by the defendants for a filing injunction. The Norleys have not opposed or even referred to the request for a filing injunction in their opposition papers or in their proposed amended complaint. An injunction shall be issued in connection with the filing of this Opinion.
4. HSBC's Request for Sanctions
HSBC further requests sanctions against the Norleys pursuant to 28 U.S.C. § 1927 ("Section 1927"). Section 1927 provides:
Any attorney or other person admitted to conduct cases in any court of the United States . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.28 U.S.C. § 1927. Section 1927 only applies to attorneys or those authorized to practice before the courts. See Schlaifer Nance Co., Inc. v. Estate of Warhol, 194 F.3d 323, 336 (2d Cir. 1999); Ted Lapidus, S.A. v. Vann, 112 F.3d 91, 96 (2d Cir. 1997). The Norleys are pro se plaintiffs. Therefore, sanctions pursuant to Section 1927 are not appropriate in this case.
Conclusion
The defendant's motion to dismiss is granted with prejudice.
The plaintiffs' request to amend their complaint is denied with prejudice.
A filing injunction is issued today barring any future suit by the Norleys against HSBC, David Lennon, Mark Klein, Lennon Klein, P.C., Theresa Eaton, or Pamela Pickel, without leave of the court in which suit is filed, for claims relating to the transactions or occurrences alleged against these defendants in the complaint or amended complaint filed in this action.
The defendant's motion for sanctions is denied.
The Clerk of Court shall close the case.
SO ORDERED