Romain et al v. Seabrook et al

MEMORANDUM OF LAW in Support re: 143 MOTION for Sanctions . . Document

S.D.N.Y.September 22, 2017

IN THE UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ELIZABETH ROMAIN, HERMAN JIMINIAN, JEANNETTE FELICIANO, ALBIN DUCLET, and MARIA MOREIRA, Plaintiffs, v. NORMAN SEABROOK, ELIAS HUSAMUDEEN, JOSEPH BRACCO, ELIZABETH CASTRO, MICHAEL MAIELLO, AMELIA WARNER, THOMAS FARRELL, KAREN TYSON, BENNY BOSCIO, KENYATTA JOHNSON, ALBERT CRAIG, DANIEL PALMIERI, ANGEL CASTRO, FREDERIC FUSCO, PAULETTE BERNARD, PLATINUM MANAGEMENT (NY) LLC, MURRAY HUBERFELD, JONA RECHNITZ, and KOEHLER & ISAACS, LLP, Defendants and THE CORRECTIONS OFFICERS BENEVOLENT ASSOCIATION, INC., COBA ANNUITY FUND, and COBA GENERAL FUND, Nominal Defendants. Civil Action No. 1:16-cv-08470 (JPO) PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR SANCTIONS PURSUANT TO FED. R. CIV. P. 11 Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 1 of 10 Plaintiffs Elizabeth Romain, Herman Jiminian, Jeanette Feliciano, Albin Duclet, and Maria Moreira (collectively, “Plaintiffs”) respectfully submit the following in support of their Motion for Sanctions Pursuant to Fed. R. Civ. P. 11.1 INTRODUCTION The basis for this motion is the August 14, 2017 Motion for Rule 11 Sanctions [ECF. No. 119] filed by Defendants Elias Husamudeen, Joseph Bracco, Elizabeth Castro, Michael Maiello, Amelia Warner, Thomas Farrell, Karen Tyson, Benny Boscio, Kenyatta Johnson, Albert Craig, Daniel Palmieri, Angel Castro, Frederic Fusco, and Paulette Bernard (“Executive Board Defendants”), and Nominal Defendants Corrections Officers’ Benevolent Association (“COBA”), COBA Annuity Fund, and COBA General Fund (“Nominal Defendants”) (the “Sanctions Motion”). In sum, because the Sanctions Motion lacks any meritorious basis whatsoever and was filed for improper purposes, the Executive Board Defendants and Nominal Defendants should themselves be subject to sanctions for proceeding with the motion.2 In the Sanctions Motion, the Executive Board Defendants and Nominal Defendants assert there are four basis for sanctions against Plaintiffs, including: (a) their claim under the Labor Management Reporting and Disclosure Act (“LMRDA”) in their original complaint; (b) the request for a Rule 16 Conference; (c) their motion for Preliminary Injunction to prevent payment 1 On August 21, 2017, Plaintiffs sent Defendants’ counsel a “Safe Harbor” notice and proposed motion pursuant to Fed. R. Civ. P. 11(c)(2) notifying Defendants that the Motion was frivolous and that if was not withdrawn within 21 days, Plaintiffs would seek sanctions. Defendants ignored Plaintiffs’ demand and opted not to withdraw their Motion. The 21-day Safe Harbor period ended on September 11, 2017. 2 Recognizing the gravity of a request for sanctions (being both a target and a movant), Plaintiffs have expended considerable resources opposing the Sanctions Motion and responding in kind. Indeed, as they have done herein, and in their opposition to the sanctions motion, Plaintiffs explained how each and every argument leveled by the Executive Board Defendants and Nominal Defendants in the Sanctions Motion lacked merit based on the law and facts. Remarkably, the Executive Board Defendants and Nominal Defendants elected not to respond to any of these arguments or further defend their own arguments by way of reply. Based on their silence, one could reasonably conclude that these defendants are either not serious about pursuing Rule 11 sanctions, or were unable to articulate a well-reasoned reply. Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 2 of 10 2 of Norman Seabrook’s criminal defense costs; and (d) the contention that the Executive Board Defendants waived demand. Each of these basis lack merit. First, with regard to the LMRDA claim, the Plaintiffs’ Amended Complaint contains no such claim. Because a claim from a non-operative pleading cannot be withdrawn, this request for sanctions is moot, untimely, and utterly without merit. Second, with regard to the request for a Rule 16 Conference and request for supplemental briefing on standing, these matters were already ruled upon by the Court. Setting aside the reasonableness of the requests at the time they were made, these issues are now resolved – rending the request for sanctions untimely and without merit. Third, with regard to the motion for Preliminary Injunction, this matter was fully briefed, supported by various authority, argued, and ruled upon by the Court. Although the Preliminary Injunction motion was denied, the Court neither found the motion frivolous nor lacking any legal basis. For this reason, there is no rational basis for sanctions to be imposed or a request to be made for the same. Finally, with regard to Plaintiffs’ assertion that the Executive Board Defendants waived demand by not asserting the Rule 23.1 demand futility defense in seeking a dismissal of the original complaint, this argument is simply absurd. In support of their contention, Plaintiffs cite specific case law for the waiver proposition. This alone belies the argument for sanctions. Here, the frivolous and unsupported nature of the Executive Board Defendants’ and Nominal Defendants’ Sanctions Motion subjects them to the very sanctions they seek to impose upon Plaintiffs. ARGUMENT Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 3 of 10 3 I. RULE 11 STANDARDS The Sanctions Motion contains statements of law and fact that the Executive Board Defendants’ and Nominal Defendants’ signed pursuant to Rule 11(a), and certified by way of filing the Sanctions Motion with the Court pursuant to Rule 11(b). These defendants have therefore “certifie[d] that to the best of [their] knowledge, information, and belief, formed after an inquiry reasonable under the circumstances…” that the Sanctions Motion was “not … presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation” and that “the claims, defenses, and other legal contentions are warranted by existing law…” pursuant to Rule 11(b)(1) and (b)(2). “Rule 11 imposes a duty on every attorney to conduct a reasonable pre-filing inquiry into the evidentiary and factual support for the claim, and to certify that the legal arguments are supported by existing law, and therefore that they are not frivolous.” Capital Bridge Co. v. IVL Technologies, No. 04 Civ. 4002, 2007 WL 3168327, at *10 (S.D.N.Y. Oct. 26, 2007) (internal citations omitted). The test is whether an attorney’s conduct was “objectively reasonable at the time he or she signed the pleading, motion, or other paper.” Mopaz Diamonds v. Institute of London Underwriters, 822 F. Supp. 1053, 1057 (S.D.N.Y 1993). Sanctions are available under Rule 11 when “it is patently clear that a claim has absolutely no chance of success under the existing precedents, and where no reasonable argument can be advanced to extend, modify, or reverse the law as it stands.” Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir. 1985). Notably, “the filing of a motion for sanctions is itself subject to the requirements of [Rule 11] and can lead to sanctions,” Int'l Bus. Machines Corp. v. BGC Partners, Inc., No. 10 CIV. 128 PAC, 2013 WL 1775373, at *3 (S.D.N.Y. Apr. 25, 2013) (quoting E. Gluck Corp. v. Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 4 of 10 4 Rothenhaus, 252 F.R.D. 175, 179 (S.D.N.Y. 2008)). Here, because the Executive Board Defendants and Nominal Defendants filed the Sanctions Motion knowing that it had no reasonable basis, and no chance of success under existing precedent, they should themselves be sanctioned. II. THE EXECUTIVE BOARD DEFENDANTS’ AND NOMINAL DEFENDANTS’ ARGUMENTS PERTAINING TO PLAINTIFFS’ INITIAL COMPLAINT AND RULE 16 CONFERENCE REQUEST ARE MOOT AND TIME-BARRED A. Because the Original Complaint has been Superseded, the Sanctions Motion Lacks any Meritorious Basis The Sanctions Motion first asserts that Plaintiffs violated Rule 11 by including a count in their initial complaint under the LMRDA. Because the operative pleading contains no LMRDA claim, the argument lacks any rational basis, is improper, was not timely raised, and is moot. In In re M.B. Int'l W.W.L., a party sought Rule 11 sanctions for a claim that had already been dismissed. 2014 WL 4160148, at *3 (S.D.N.Y. Aug. 15, 2014). The court held that seeking Rule 11 sanctions for already disposed of claims was improper, writing “[t]he implicit purpose of Rule 11’s grace period—to allow the non-movant a fair opportunity to remedy a faulty representation—precludes a party from indulging in the sort of substantial delay that respondents engaged in before seeking Rule 11 relief.” Id. This is because Rule 11’s safe harbor provision exists “to allow the target of the motion an opportunity to withdraw ‘the challenged papers, claim, defense, contention or denial.’” Id., quoting Fed. R. Civ. P. 11(c)(2). Plaintiffs filed their Amended Complaint, which does not raise any claims under the LMRDA, on May 17, 2017, pursuant to an agreed upon stipulation with defendants, including the Executive Board Defendants and Nominal Defendants. There exists no procedural mechanism for a plaintiff to withdraw a superseded complaint. Accordingly, the Executive Board Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 5 of 10 5 Defendants’ and Nominal Defendants’ Sanctions Motion, with regard to Plaintiffs’ former LMRDA claim is procedurally improper and sanctionable. B. Because Request for Rule 16 Conference and Supplemental Briefing was Denied, the Request for Sanctions is Untimely and Moot The Sanctions Motion also seeks sanctions because Plaintiffs previously requested a Rule 16 Conference [ECF No. 92] and supplemental briefing on the issue of standing [ECF No. 95]. However, like Plaintiffs’ claims under the LMRDA, these requests have already been ruled upon by the Court, and cannot be withdrawn. Setting aside the reasonableness of these requests when made (which Plaintiffs stand by), the Executive Board Defendants’ and Nominal Defendants’ request for sanctions on this basis is procedurally improper, untimely, and sanctionable. III. BECAUSE PLAINTIFFS’ PRELIMINARY INJUNCTION MOTION WAS MERITORIOUS, THERE IS NO BASIS FOR SANCTIONS Next, the Executive Board Defendants and Nominal Defendants seek sanctions for the filing of Plaintiffs’ Motion for Preliminary Injunction [ECF No. 101]. This argument fails because the motion for Preliminary Injunction was meritorious. Rule 11 requires that “claims, defenses and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending or reversing existing law or for establishing new law.” Plaintiffs’ Motion for Preliminary Injunction sought to enjoin COBA’s payment of Defendant Seabrook’s legal defense costs in the criminal action currently pending against him. The Preliminary Injunction Motion cited to case law interpreting the LMRDA (the federal analogue to New York’s Labor and Management Improper Practices Act (“LMIPA”)), which unequivocally establishes that payment of the legal defense costs of a criminal charged union member by the union is improper. Although the Preliminary Injunction motion was Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 6 of 10 6 denied, mere denial of a motion does not axiomatically render a motion frivolous – to the contrary, the extensive briefing and hearing on the motion renders the motion substantive. Indeed, the conduct of COBA and its executive leadership is governed, at least in part, by the LMIPA which, like the LMRDA, governs union conduct. Courts regularly rely upon case law interpreting federal statutes to interpret state statutes, especially where, as with regard to the LMIPA, there is a dearth of substantive case law.3 See, e.g., People v. Perez, 18 Misc. 3d 582, 590 (Sup. Ct., Bronx County 2007) (“Although not binding, federal court decisions concerning federal statutes analogous to state laws are generally highly persuasive authority, since uniformity in the interpretation of federal statutes and state statutes is desirable.”). Any argument that Plaintiffs should be subject to sanctions because they argued (and will argue in their forthcoming opposition to Defendants’ Motion to Dismiss) that LMRDA precedent is instructive in interpreting a substantively identical state law statute is groundless. The Executive Board Defendants and Nominal Defendants next assert that Plaintiffs engaged in improper conduct, because in their Preliminary Injunction Memorandum of Law in Support, Plaintiffs quoted from United States v. Local 1804-1 Int’l Longshoremen’s Ass’n, AFL- CIO, 732 F.Supp. 434 (S.D.N.Y. 1990), but did not include a footnote from that case which the Executive Board Defendants and Nominal Defendants claim exonerates them en toto from the conduct that is the subject of the Motion for Preliminary Injunction. The footnote at issue reads “[m]any states provide by statute for advance payment of indemnification expenses in suits against officers and directors of corporations for breaches of fiduciary duty.” Local 1804-1, 732 F.Supp. at 437 fn. 1. Of course, the footnote does not stand for the proposition that state statutes allow for indemnification expenses in suits where officers and directors stand criminally charge, 3 In fact, the LMIPA served as the model for Title V of the LMRDA. See Michael J. Goldberg, Present at the Creation: Clyde W. Summers and the Field of Union Democracy Law, 14 Emp. Rts. & Emp. Pol'y J. 121, 134 (2010). Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 7 of 10 7 and so is inapplicable to Plaintiffs’ Preliminary Injunction Motion in any event. Regardless, the assertion that Plaintiffs’ counsel somehow obfuscated the law is simply ridiculous. The footnote is unremarkable, and stands simply for a well-known proposition of law that corporations may indemnify officers and directors for fiduciary duty claims so long as a statute allows for it. Finally, with regard to this issue, the Executive Board Defendants’ and Nominal Defendants’ simply ignore that Plaintiffs’ Motion for Preliminary Injunction also asserts that the payment of Defendant Seabrook’s criminal defense fees is ultra-vires, as it is was not specifically provided for in COBA’s Charter and Bylaws. While the Court disagreed with this contention, it did not find it lacking in a reasonable basis. On this ground alone, Plaintiffs’ Motion for Preliminary Injunction was appropriate. The Executive Board Defendants and Nominal Defendants arguments regarding Plaintiffs’ Motion for Preliminary Injunction are without merit. III. BECAUSE PLAINTIFFS’ WAIVER CLAIM IS MERITORIOUS, THERE IS NO BASIS FOR SANCTIONS Finally, the Executive Board Defendants and Nominal Defendants assert that Plaintiffs’ argument, that the Executive Board Defendants waived their demand futility claims by failing to raise them in a motion to dismiss, is improper and subjects Plaintiffs to sanctions. Plaintiffs have freely admitted there is a paucity of case law on the subject of the effect of failing to raise demand futility in an initial pleading – in large part, because any practitioner with a modicum of experience in derivative litigation raises demand futility arguments in a threshold motion at the outset of any derivative case. Regardless, Plaintiffs’ assertion of their waiver claim cited the extant case law is available in support of their position. See, e.g., ECF No. 106 at ¶ 135, citing Burghart v. Landau, 821 F.Supp. 173, 179 (S.D.N.Y. 1993) (“a rule 23.1 defense is usually pleaded or waived like a rule (12)(b)(6) defense”). Plaintiffs’ citation to case law alone renders Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 8 of 10 8 their waiver claim substantive and warranted by existing law. Accordingly, the Executive Board Defendants’ and Nominal Defendants’ request for sanctions on this basis lacks any reasonable basis – making the request itself sanctionable. CONCLUSION Because of the Executive Board Defendants and the Nominal Defendants are themselves in violation of Rule 11(b), Plaintiffs’ counsel has been required to expend time and resources responding to matters that were raised without a good faith basis, and are therefore entitled to an award of costs and fees. Accordingly, for the foregoing reasons, Plaintiffs’ counsel moves this court for all appropriate sanctions pursuant to Rule 11, including but not limited to monetary and non-monetary sanctions, costs, fees, and any other relief deemed appropriate by the Court. Date: September 22, 2017 NEWMAN FERRARA LLP By: s/ Jeffrey M. Norton Jeffrey M. Norton Roger A Sachar Jr. 1250 Broadway, 27th Floor New York, NY 10001 (212) 619-5400 SEELIG LAW OFFICES, LLC By: s/ Philip H. Seelig Philip H. Seelig 299 Broadway, Suite 1600 New York, NY 10007 (212) 766-0600 Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 9 of 10 9 CERTIFICATE OF SERVICE I, Jeffrey M. Norton, an attorney admitted to practice in the State of New York and this Court, hereby certify that on the 22nd day of September, 2017, I caused service of the Plaintiffs’ Memorandum of Law in Support of their Motion for Sanctions pursuant to Fed. R. Civ. P. 11 to be made by electronic filing with the Clerk of the Court using the CM/ECF System, which will send a Notice of Electronic Filing to all parties with an e-mail address of record, who have appeared and consent to electronic service in this action. Dated: New York, New York September 22, 2017 s/ Jeffrey M. Norton Jeffrey M. Norton Case 1:16-cv-08470-JPO Document 144 Filed 09/22/17 Page 10 of 10