Romain et al v. Seabrook et al

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

S.D.N.Y.October 6, 2017

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) UNION DEFENDANTS' MEMORANDUM IN OPPOSITION TO PLAINTIFFS' MOTION FOR RULE 11 SANCTIONS Dated: Rhinebeck, New York October 6, 2017 Nathaniel K. Charny (NC 5664) Charny & Wheeler 9 West Market Street Rhinebeck, New York 12572 Email: ncharny@charnywheeler.com Telephone: (845) 876-7500 Fax: (845) 876-7501 Attorneys for Union Defendants Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 1 of 9 i TABLE OF CONTENTS TABLE OF AUTHORITIES .......................................................................................................... ii STANDARD OF REVIEW .............................................................................................................1 ARGUMENT ...................................................................................................................................2 I. UNION DEFENDANTS' MOTION FOR SANCTIONS REGARDING THE WAIVER ARGUMENT IS LEGITIMATE .......................................2 A. The "Paucity" of Plaintiffs' Argument in Support of this Motion ...........................2 B. Burghart is On-Point and Unequivocally Dispositive .............................................3 C. Counsels' Confusion About the Definition of a "Pleading" is Sanctionable ..............................................................4 D. Plaintiffs' Have Doubled-Down on this Frivolous Argument .................................4 II. UNION DEFENDANTS' MOTION FOR SANCTIONS REGARDING THE PRELIMINARY INJUNCTION IS LEGITIMATE ..........................5 CONCLUSION ................................................................................................................................6 Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 2 of 9 ii TABLE OF AUTHORITIES Cases Bravia Capital Partners, Inc. v. Fike, 296 F.R.D. 136 (S.D.N.Y. 2013) ......................................... 6 Canadian Overseas Ores Ltd. v. Compania de Acero Del Pacifico S.A., 528 F. Supp. 1337 (S.D.N.Y. 1982), aff'd, 727 F.2d 274 (2d Cir. 1984) ....................................... 4 Dilek v. Watson Enters., Inc., 885 F. Supp. 2d 632 (S.D.N.Y. 2012) ............................................ 1 Doe v. Quest Diagnostics, Inc., No. 15 CIV. 8992 (LGS), 2017 WL 3447899 (S.D.N.Y. Aug. 11, 2017) ...................................... 1 Gurvey v. Cowan, Leibowitz & Latman, P.C., No. 06 CIV. 1202 (LGS/HBP), 2015 WL 5472893 (S.D.N.Y. Sept. 17, 2015), appeal dismissed (Nov. 30, 2015) ........................ 5 Knipe v. Skinner, 999 F.2d 708 (2d Cir. 1993) .............................................................................. 6 Lee v. Grand Sichuan E. (N.Y.) Inc., No. 12-CV-08652 (SN), 2014 WL 199512 (S.D.N.Y. Jan. 17, 2014) ............................................ 2 Longanecker v. Diamondhead Country Club, 760 So. 2d 764 (Miss. 2000) .................................. 4 McCoy v. Kazi, No. 08-CV-07244 (SJO/CWX) (C.D. Cal. Aug. 27, 2010) ................................. 4 Renz by Renz v. Carota, No. 87-CV-487 (TAM), 1991 WL 165677 (N.D.N.Y. Aug. 26, 1991) .......................................... 4 Renz v. Beeman, 963 F.2d 1521 (2d Cir. 1992) ............................................................................. 4 United States ex rel. Kolchinsky v. Moody's Corp., No. 12-CV-1399 (WHP), 2017 WL 825478 (S.D.N.Y. Mar. 2, 2017) ...................................... 3, 4 Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 3 of 9 1 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") as well as Nominal Defendants Correction Officers' Benevolent Association, Inc. (COBA), COBA Annuity Fund, and COBA General Fund ("Nominal Defendants") (all taken together "Union Defendants") submit this memorandum in opposition to Plaintiffs' Motion for Rule 11 Sanctions. STANDARD OF REVIEW Plaintiffs move for Rule 11 sanctions against the Union Defendants asserting that the Union Defendants' motion for Rule 11 sanctions was itself in violation of Rule 11. Only a handful of weeks ago, Judge Schofield emphatically rejected the same vapid motion made by Mr. Norton for another client. In that case, Doe v. Quest Diagnostics, Inc., No. 15 CIV. 8992 (LGS), 2017 WL 3447899 (S.D.N.Y. Aug. 11, 2017), Judge Schofeld explained that where, as here, the original sanctions motion "is not without a factual or legal basis" and where, as here, the responsive sanctions motion is "duplicative of its opposition to the motion," the second sanctions motion should denied. Id. at *3 (citing cases and noting that Mr. Norton has "caus[ed] the parties and the Court to waste considerable time and resources, [] prolong[ed] this litigation [and relied upon] self-serving recitation of the facts and evidence . . ."). Under Rule 11, "[t]he operative question is whether the argument is frivolous, i.e., the legal position has 'no chance of success,' and there is 'no reasonable argument to extend, modify or reverse the law as it stands.'" Dilek v. Watson Enters., Inc., 885 F. Supp. 2d 632, 653 (S.D.N.Y. 2012); see also Lee v. Grand Sichuan E. (N.Y.) Inc., No. 12-CV-08652 (SN), 2014 Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 4 of 9 2 WL 199512, at *1 (S.D.N.Y. Jan. 17, 2014) ("It is improper for a party to file a Rule 11 motion for the purpose of emphasizing the merits of the party's position.").1 ARGUMENT I. UNION DEFENDANTS' MOTION FOR SANCTIONS REGARDING THE WAIVER ARGUMENT IS LEGITIMATE A. The "Paucity" of Plaintiffs' Argument in Support of this Motion Plaintiffs' counsel offer a single paragraph to support their contention that the Union Defendants are sanctionably off-base in seeking sanctions against Plaintiffs for continuing their frivolous Rule 23.1 waiver argument. That single paragraph, in full, is as follows: 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 [sic] 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 their waiver claim substantive and warranted by existing law. Accordingly, the Executive Board Defendants' and Nominal Defendants' request for 1 Mr. Norton asserts that the Union Defendants' decision not to file a reply brief regarding the underlying motion should create a negative inference. ECF Docket No. 144 n.2. As the Court was advised by the cover letter to the courtesy copies of the motion, the Union Defendants' did not reply because all of Plaintiffs' arguments in opposition to the motion were dealt with in the moving papers. There is no authority to support Plaintiffs' argument that where counsel chooses not to waste the Court's time repeating arguments made in their moving papers they should be sanctioned. Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 5 of 9 3 sanctions on this basis lacks any reasonable basis -- making the request itself sanctionable. ECF Docket No. 144 at pp. 7-8. There is much askew about this paragraph, discussed below. B. Burghart is On-Point and Unequivocally Dispositive It is reckless and sanctionable for counsel to continue to cite to Burghart as "extant case law available in support of their position." Id. at p. 7. By their own parenthetical quotation from the case counsel are conceding that they have no legal leg on which to stand. As quoted by Mr. Norton, Burghart states: "[A] rule 23.1 defense is usually pleaded or waived like a rule 12(b)(6) defense." Given that there has not yet been any pleading by the Union Defendants, under this "extant case law" there certainly has been no waiver. See also FRCP 12(h)(2) (expressly exempting Rule 12(b)(6) defenses from waiver in this context); United States ex rel. Kolchinsky v. Moody's Corp., No. 12-CV-1399 (WHP), 2017 WL 825478, at *3 (S.D.N.Y. Mar. 2, 2017) ("As Rule 12(h) explains, the only defenses that are 'waive[d]' if not asserted in the first pre-answer motion are listed in Rules 12(b)(2)-(5)."). Counsel also fail to acknowledge that the quoted sentence from Burghart was in dicta. In Burghart the suit was not brought as a derivative action and the defendants never pleaded or moved regarding the Rule 23.1 defense. The Court determined that the claims should have been brought as derivative actions, and analyzed Rule 23.1 demand futility sua sponte. It is for this reason that the Court includes the phrase "usually" in the quoted parenthetical -- because the Court then goes on to identify an exception. The full quote is as follows: "At the outset, it is noted that a rule 23.1 defense is usually pleaded or waived like a rule 12(b)(6) defense. The instant case differs in that the discussion is Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 6 of 9 4 hypothetical, addressing the status of plaintiff's claims as if they were pleaded as derivative claims, which they were not." Burghart, 821 F. Supp. at 179. To the extent there is any controversy it is whether or not a defendant is obligated to state the Rule 23.1 defense as an affirmative defense in its first responsive pleading or whether merely denying the demand futility allegations in their answer is sufficient. Authority affirmed by the Second Circuit has found that latter -- more permissive interpretation -- is the law. See Renz by Renz v. Carota, No. 87-CV-487 (TAM), 1991 WL 165677, at *2 (N.D.N.Y. Aug. 26, 1991), aff'd sub nom. Renz v. Beeman, 963 F.2d 1521 (2d Cir. 1992); see also McCoy v. Kazi, No. 08-CV- 07244 (SJO/CWX), at *17 (C.D. Cal. Aug. 27, 2010) (Rule 23.1 defense need not be resolved prior to trial); Longanecker v. Diamondhead Country Club, 760 So. 2d 764, 769 (Miss. 2000). In any case, this interesting controversy is irrelevant since in this case there has been no first responsive pleading and hence no possible waiver of the Rule 23.1 defense under any analysis. Canadian Overseas Ores Ltd. v. Compania de Acero Del Pacifico S.A., 528 F. Supp. 1337, 1344-45 (S.D.N.Y. 1982), aff'd, 727 F.2d 274 (2d Cir. 1984). C. Counsels' Confusion About the Definition of a "Pleading" is Sanctionable Perhaps -- and this would be in spite of the fact that the error has been pointed out to plaintiffs' counsel repeatedly -- plaintiffs' counsel continues to be under the frivolous misunderstanding that pre-answer motions somehow fall within the definition of "pleadings." Of course, counsel is wrong. See FRCP 7(a); Canadian Overseas, 528 F. Supp. at 1344- 45; see also FRCP 12(h)(2); Kolchinsky, 2017 WL 825478, at *3. D. Plaintiffs' Have Doubled-Down on this Frivolous Argument Defendants' counsel and the Court have had to deal with this frivolous and contrived legal theory, repeatedly asserted, since March 2017, see ECF Docket Nos. 92, 92-1, 92-3, 95, Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 7 of 9 5 when it was used by Plaintiffs' counsel as a basis for Mr. Norton to demand voluminous document production on 18 days notice. The Court summarily rejected Plaintiffs' submissions re same. ECF Docket No. 99. Instead of abandoning the argument Plaintiffs' counsel have doubled-down and, inexplicably, inserted the waiver argument into the First Amended Complaint (the FAC). ECF Docket No. 106 at pp. 22-23. Mr. Norton, Mr. Seelig and Mr. Sachar's waiver argument must be "evaluated under an objective standard of reasonableness," and where, as here, the submission "has no chance of success and makes no reasonable argument to extend, modify or reverse the law as it stands," Gurvey v. Cowan, Leibowitz & Latman, P.C., No. 06 CIV. 1202 (LGS/HBP), 2015 WL 5472893, at *3 (S.D.N.Y. Sept. 17, 2015), appeal dismissed (Nov. 30, 2015) (citing authority), Rule 11 sanctions are appropriate. II. UNION DEFENDANTS' MOTION FOR SANCTIONS REGARDING THE PRELIMINARY INJUNCTION IS LEGITIMATE Union Defendants' rely on their Rule 11 moving papers for the legitimate argument that Plaintiffs' counsel has acted in a sanctionable manner regarding Plaintiffs' request for a preliminary injunction. ECF Docket Nos. 112 & 117. For brevity's sake those arguments are not repeated here but instead incorporated by this reference. Union Defendants ask the Court to consider the following responses specific to the instant motion. First, Plaintiffs' rely upon the Court's apparent interest in the argument that the Union's governing documents prohibit advancing attorneys fees in this context, which would in turn be a violation of New York's Not-for-Profit Corporation Law. The Court is reminded that this Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 8 of 9 6 argument was not made until Plaintiffs' reply papers, and even then, in the most oblique manner possible -- buried in a footnote and supported only by an incomplete citation to "id. at p. 7." ECF Docket No. 114, p. 4 n.2.2 It is settled in this District that "[a]rguments may not be made for the first time in a reply brief." Knipe v. Skinner, 999 F.2d 708, 711 (2d Cir. 1993); Bravia Capital Partners, Inc. v. Fike, 296 F.R.D. 136, 144 (S.D.N.Y. 2013). Here, Plaintiffs counsel: (i) relied exclusively on inapposite LMRDA case law in their moving papers; (ii) excised a material and dispositive footnote from their leading case citation; and (iii) only cited to relevant state law in a footnote in their reply brief. While Plaintiff's now posit that the Court did not find this "lacking in a reasonable basis," ECF Docket No. 144 at p. 7, no such statement is made nor implication drawn by the Court in its ruling on the preliminary injunction, and in fact, the opposite implication is fairly drawn. CONCLUSION For these reasons as well as the entire record before the Court, Union Defendants submit that Plaintiffs' motion for Rule 11 sanctions should be denied. Dated: Rhinebeck, New York October 6, 2017 ______________________________ Nathaniel K. Charny (NC 5664) Charny & Wheeler 9 West Market Street Rhinebeck, New York 12572 Email: ncharny@charnywheeler.com Telephone: (845) 876-7500 Fax: (845) 876-7501 Attorneys for Union Defendants 2 Some investigative work leads to the presumption that the "id." reference is to Plaintiffs' moving brief (ECF Docket No. 102), which in turn makes a different one-sentence argument that "The COBA Constitution and Bylaws do not contain any provision allowing COBA to pay Mr. Seabrook's legal fees." ECF Docket No. 102 at p. 7 (emphasis added). Case 1:16-cv-08470-JPO Document 152 Filed 10/06/17 Page 9 of 9