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United States District Court, Southern District of New York

December 11, 1991


The opinion of the court was delivered by: Stewart, District Judge:


Plaintiffs Martin Greenhouse and Sherry Greenhouse brought this action seeking relief from defendant's efforts to collect sums of money allegedly due on plaintiff's tax returns for the years 1982, 1986, 1987, and 1988. Defendants are the Manhattan District Director of the United States Internal Revenue Service ("IRS"), the Chief of the Collection Division of the IRS, and an agent of the Collection Department of the IRS, Anselmo Estwick (hereinafter "the government.") In claims one through five of their Amended and Supplementary Complaint ("amended complaint"), plaintiffs seek declaratory and injunctive relief with respect to the aforementioned tax liabilities.*fn1

Presently before the Court is defendant's motion, pursuant to Rule 12(b)(1) and Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the first five claims in the amended complaint*fn2 for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. Also before the Court is a cross-motion for an order granting judgment to the plaintiffs.*fn3 The Court also considers defendant's motion, pursuant to Rule 11 of the Federal Rules of Civil Procedure, for the imposition of sanctions against plaintiffs, Martin and Sherry Greenhouse, and their attorney, Herbert G. Feinson.


This case deals with plaintiffs' problems in paying taxes owed for the years 1982, 1986, 1987, and 1988. Defendant IRS assessed plaintiffs for underpaid taxes, penalties and interest. Although plaintiffs made several payments over a period of time, the IRS claims that the plaintiffs still owed a significant amount of money and therefore filed a federal tax lien on November 21, 1989. The IRS also proceeded to collect the money by levy against plaintiffs' business.

In light of the fact that the complaint at issue represents the plaintiffs' third attempt to invoke this Court's jurisdiction in granting equitable relief, it is necessary to briefly state the procedural history of this case. On April 27, 1990, plaintiffs filed their initial complaint in this action. The complaint alleged that the IRS filed a false Notice of Tax Lien; that the taxpayer paid $30,000.00 between June and December 1989 sufficient to pay the amount due plus the interest provided by the IRS; and that the IRS applied over $10,000.00 to illegal penalties and interest. Compl. Greenhouse v. United States, 90 Civ. 2844. By Order to Show Cause dated April 30, 1990, plaintiff sought a temporary restraining order and preliminary injunction enjoining the Government from their collection efforts. A hearing was conducted on May 10, 1990. On May 15, 1990, this Court issued a Memorandum Decision vacating the April 30, 1990 temporary restraining order, denying plaintiffs' motion for a preliminary injunction and denying plaintiffs' request for an order for the release of the tax liens. Greenhouse v. United States, 738 F. Supp. 709, 710 (S.D.N.Y. 1990). This Court found that the Anti-Injunction Act, 26 U.S.C. § 7421(a) (hereinafter "Section 7421" or "the Anti-Injunction Act"), which prohibits a suit for the purpose of restraining the assessment or collection of any tax*fn4, was applicable and, absent the application of any exceptions to the Anti-Injunction Act, deprived this Court of subject matter jurisdiction over the case. Greenhouse, 738 F. Supp. at 712. We analyzed the case in light of the exception to the prohibition of injunctions on the assessment or collection of taxes articulated in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), under which a two-pronged test must be satisfied: first, it must be clear that under no circumstances could the government prevail given the facts available and the most liberal view of the law; and second, that equity jurisdiction must otherwise exist. Greenhouse, 738 F. Supp. at 712 (citing Enochs, 370 U.S. at 7, 82 S.Ct. at 1129). Short of satisfying the Enochs test, a plaintiff taxpayer must abide by the full payment rule under which "a federal court has jurisdiction over a tax refund suit only after the taxpayer has made full payment of the assessment, including penalties and interest." Greenhouse, 738 F. Supp. at 713 (citing Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff'd on reh'g, 362 West Page 139 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960)). This Court found that the government had "provided enough support for its position to show that it might prevail."*fn5 Id. at 712. Thus, we concluded that we lacked subject matter jurisdiction over the case. Id. at 713.

Plaintiffs next attempted to restrain the Government's collection efforts in October, 1990, when they presented a proposed Order to Show Cause requesting that an Internal Revenue Service collection summons be quashed and/or its' enforcement stayed. We declined to sign the proposed Order and denied plaintiffs' petition on the merits on November 1, 1990. Order, November 1, 1990, Doc. # 15. One week later, on November 9, 1990, plaintiffs filed the amended complaint which is before us now.


I. The Amended Complaint

Plaintiffs' first four claims request declarations that the assessments for their 1982, 1986, 1987 and 1988 tax liabilities are "nul [sic] and void." Amended Complaint ¶¶ 21, 32, 41, 46. In their fifth claim, plaintiffs seek injunctive relief directing defendants to release the tax liens filed on November 21, 1989. Amended Complaint ¶ 69. As defendant correctly notes, this claim is identical to the relief sought in plaintiffs' original complaint.*fn6

Defendant further points out that plaintiffs fail to state the purported basis for this Court's jurisdiction, as required by Rule 8(a)(1) of the Federal Rules of Civil Procedure.*fn7 Def.'s Mem.Supp.Mot. to Dismiss at 4. In Greenhouse, we found that the Anti-Injunction Act deprived us of subject matter jurisdiction to grant plaintiffs' relief; thus, the question of jurisdiction arises anew with plaintiffs' new complaint and a finding that indeed we have subject matter jurisdiction is a prerequisite to any decision on the merits of plaintiffs' claims.*fn8

A. The Claim for Injunctive Relief

Relying on our previous decision in this case, defendant contends that plaintiffs' fifth claim, for injunctive relief, is barred by the Anti-Injunction Act. Def.'s Mem.Supp.Mot. Dismiss and Sanct. at 3. Citing only one case in their memorandum of law, plaintiffs claim that the United States Supreme Court "eliminated the Anti-Decaratory [sic] Judgment and Anti-Injunction Sections of the Internal Revenue Code."*fn9 Pls'. Mem. at 2. For this rather novel proposition, plaintiff cites Commissioner of Internal Revenue v. Shapiro, 424 U.S. 614, 96 S.Ct. 1062, 47 L.Ed.2d 278 (1976).*fn10 This Court finds plaintiffs' reading of Shapiro indefensible. First, the Shapiro case involved a jeopardy assessment, pursuant to 26 U.S.C. § 6861, which is not at issue here. Id. at 617, 96 S.Ct. at 1066. Second, the plaintiff in Shapiro, under a final order of extradition to Israel for trial on criminal fraud charges, alleged that he could not litigate the issue with the IRS while in jail in Israel and that he would indeed be in jail in Israel unless he could use the frozen funds as bail money. Id. at 620, 96 S.Ct. at 1067. Under these dramatic circumstances, plaintiff thus satisfied at least the first prong of Enochs' two pronged test: he demonstrated the presence of extraordinary circumstances causing irreparable harm for which his remedy of later contesting the validity of the assessment was inadequate. Id. at 623, 96 S.Ct. at 1068.*fn11 Moreover, Shapiro has been interpreted to further reinforce the established rule that:

  even if [plaintiff] could establish that the
  government had no possible chance of succeeding on
  the merits, injunctive relief would still be
  prohibited unless [plaintiff] established that equity
  jurisdiction exists, i.e., that the court's failure
  to issue an injunction order enjoining the collection
  or assessment of taxes will cause irreparable harm
  for which he has no adequate remedy at law.

Johnson v. United States, 680 F. Supp. 508, 513 (E.D.N.Y. 1987), (citing Commissioner v. Shapiro, 424 U.S. at 623, 96 S.Ct. at 1068). Contrary to plaintiffs' bald assertion that the United States Supreme Court eliminated § 7421, there is no doubt, in the mind of this Court, that the Anti-Injunction Act remains in full force and effect. The Anti-Injunction Act "prohibits any suit which would enjoin the assessing or collecting of any taxes." Johnson, 680 F. Supp. at 512. Its' purpose is "to protect the government's ability `to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for refund.'" Id. (quoting Enochs, 370 U.S. at 7, 82 S.Ct. at 1129). Thus, as before, the only way that plaintiffs can overcome the hurdle posed by § 7421 is to bring themselves within the exception articulated in Enochs, 370 U.S. at 7, 82 S.Ct. at 1129. Rather strikingly, plaintiffs, so steadfast in their conviction that the Anti-Injunction Act no longer prevails, have, in their amended complaint, made no attempt to meet the strenuous standards for exception announced by the Supreme Court in Enochs. See supra notes 5 and 10. We therefore incorporate by reference our analysis in Greenhouse, 738 F. Supp. at 712-713, and reaffirm our decision therein, that the Anti-Injunction Act divests this Court of subject matter jurisdiction to grant injunctive relief. Since plaintiffs' fifth claim in the amended complaint is virtually identical to the first cause of action in the original complaint, it must be dismissed on the same basis: lack of subject matter jurisdiction.

B. The Claims for Declaratory Relief

We now face the question whether, as defendant contends, plaintiffs' first four claims, requesting declarations that their various tax liabilities are null and void, must also be dismissed. Def.'s Mem.Supp. Mot. Dismiss and Sancts. at 4. To answer this question, we must take cognizance of the Declaratory Judgment Act, 28 U.S.C. § 2201(a) (hereinafter "§ 2201" or "the Declaratory Judgment Act").*fn12

The Declaratory Judgment Act specifically exempts from its coverage cases "with respect to Federal taxes." (emphasis added).*fn13 Thus, within the plain meaning of § 2201, plaintiffs' claims for declaratory judgment are barred. Furthermore, the United States Supreme Court has stated that "[t]here is no dispute . . . that the federal tax exemption to the Declaratory Judgment Act is at least as broad as the Anti-Injunction Act." Bob Jones University v. Simon, 416 U.S. 725, 733 n. 7, 94 S.Ct. 2038, 2044 n. 7, 40 L.Ed.2d 496 (1974). Courts have traditionally perceived the Anti-Injunction Act and the Declaratory Judgment Act to dovetail in their prohibition against suits to restrain the collection or assessment of taxes. "[T]he Declaratory Judgment Act's prohibition against relief `with respect to Federal taxes,' like the Anti-Injunction Act, is designed to protect the `Government's need to assess and collect taxes as expeditiously as possible with a minimum of pre-enforcement judicial interference.'" Nelson v. Regan, 731 F.2d 105, 109 (2nd Cir. 1984), cert. denied, sub nom. Manning v. Nelson, 469 U.S. 853, 105 S.Ct. 175, 83 L.Ed.2d 110 (1984) (quoting Bob Jones, 416 U.S. at 736, 94 S.Ct. at 2045) "These two provisions prohibit federal courts from entertaining proceedings for declaratory relief in cases involving federal taxes." Warren v. United States, 874 F.2d 280, 282 (5th Cir. 1989) (citing Smith v. Booth, 823 F.2d 94, 97 (5th Cir. 1987)). This Court has once announced that plaintiffs failed to bring their amended complaint within the narrow exception to the Anti-Injunction Act announced by the Supreme Court in Enochs. Greenhouse, 738 F. Supp. at 712-713. Plaintiffs' first four claims in the amended complaint allege no new facts sufficient to carry the "heavy burden," Johnson, 680 F. Supp. at 512, of demonstrating that under no circumstances could the government prevail, and that equity jurisdiction otherwise exists. Enochs, 370 U.S. at 1, 82 S.Ct. at 1125.*fn14 It is thus unnecessary to decide which Act takes precedence in achieving the result here: for the purposes of the instant case, both the Anti-Injunction and the Declaratory Judgment Act preclude this Court from granting plaintiff declaratory relief.*fn15

C. The Constitutional Issue

At oral argument on October 30, 1991, plaintiffs raised, for the first time, a constitutional question.*fn16 Because counsel for plaintiffs merely alluded to the due process clause of the Constitution, Transcript of Oral Argument, 90 Civ. 2844, Doc. # 36 at 2, See supra note 16, it is unclear exactly what issue plaintiffs assert. We will therefore address the constitutional issue in the most general sense. It is well established that "we have never recognized a constitutional violation arising from the collection of taxes." Wages v. Internal Revenue Service, 915 F.2d 1230, 1235 (9th Cir. 1990), cert. denied, ___ U.S. ___, 111 S.Ct. 986, 112 L.Ed.2d 1071 (1991). "The United States Supreme Court has held that Congress may establish a tax lien to guarantee the payment of taxes as an exercise of its constitutional power to `lay and collect taxes.'" Christensen v. United States, 733 F. Supp. 844, 850 (D.N.J. 1990), aff'd, 925 F.2d 416 (3rd Cir. 1991) (quoting Michigan v. United States, 317 U.S. 338, 340, 63 S.Ct. 302, 302, 87 L.Ed. 312 (1943)). We therefore find no constitutional basis upon which to grant plaintiffs the relief they seek.

II. The Rule 11 Motion for Sanctions

We turn now to the Government's motion, pursuant to Rule 11 of the Federal Rules of Civil Procedure, for the imposition of sanctions against plaintiffs Martin and Sherry Greenhouse, and their attorney in this action, Herbert Feinson. Rule 11 requires that if a party is represented by an attorney, all papers submitted to the court must be signed by the attorney. Rule 11 further provides, in pertinent part, that:

  The signature of an attorney or party constitutes a
  certificate by the signer that the signer has read
  the pleading, motion, or other paper; that to the
  best of the signer's knowledge, information, and
  belief formed after reasonable inquiry it is well
  grounded in fact and is warranted by existing law or
  a good faith argument for the extension,
  modification, or reversal of existing law, and that
  it is not interposed for any improper purpose, such
  as to harass or to cause unnecessary delay or
  needless increase in the cost of litigation . . . If
  a pleading, motion, or other paper is signed in
  violation of this rule, the court, upon motion or
  upon its own initiative, shall impose upon the person
  who signed it, a represented party, or both, an
  appropriate sanction, which may include an order to
  pay to the other party or parties the amount of the
  reasonable expenses incurred because of the filing of
  the pleading, motion, or other paper, including a
  reasonable attorney's fee.

  "The 1983 amendment to Rule 11 was intended to discourage dilatory or abusive tactics and help to streamline the litigation process by lessening frivolous claims or defenses." Fed.R.Civ.P. advisory committee's note to 1983 amendment. The imposition of sanctions for violations of Rule 11 is mandatory: "Once a violation [of Rule 11] is shown to exist, the district court may not ignore the command of the statute: `sanctions shall be imposed.'" O'Malley v. New York City Transit Authority, 896 F.2d 704, 709 (2d Cir. 1990). Nevertheless, "[w]hile the imposition of sanctions is mandatory when a claim has absolutely no chance of success, the Court is to avoid hindsight review of the claim, to resolve all doubts in favor of the signer and to refrain from imposing sanctions where such action would stifle the enthusiasm or chill the creativity that is the very lifeblood of the law." N.Y. State National Organization for Women v. Terry, 732 F. Supp. 388, 411 (S.D.N.Y. 1990), motion to vacate denied, New York State National Organization for Women v. Terry, 737 F. Supp. 1350 (S.D.N.Y. 1990) (citing Motown Productions, Inc. v. Cacomm, Inc., 849 F.2d 781, 785 (2d Cir. 1988); Oliveri v. Thompson, 803 F.2d 1265, 1275 (2d Cir. 1986), cert. denied, 480 U.S. 918, 107 S.Ct. 1373, 94 L.Ed.2d 689 (1987); Eastway Construction Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir. 1985) ("Eastway I"), cert. denied, 484 U.S. 918, 108 S.Ct. 269, 98 L.Ed.2d 226 (1987)). The Second Circuit has noted that "Rule 11 `does not license a district court to sanction any action by an attorney or party that it disapproves of . . . Imposition of sanctions must be based on a pleading, motion or other paper signed and filed in federal court . . .'" United States v. International Brotherhood of Teamsters, 948 F.2d 1338, 1344 (2nd Cir. 1991) (citing McMahon v. Shearson/American Express, Inc., 896 F.2d 17, 22 (2d Cir. 1990)).

A. The Imposition of Sanctions Against Counsel

In deciding whether to impose Rule 11 sanctions on an attorney, courts are to apply an objective standard of reasonableness. Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., ___ U.S. ___, 111 S.Ct. 922, 932-33, 112 L.Ed.2d 1140 (1991). A showing of "bad faith" on the part of the signer is not required where the conduct of counsel is at issue. Eastway I, 762 F.2d at 243. Rather,

  applying a test of objective reasonableness, this
  court will hold that sanctions are warranted where it
  is clear that: (1) a reasonable inquiry into the
  basis for a pleading has not been made; (2) under
  existing precedents there is no chance of success;
  and (3) no reasonable argument has been advanced to
  extend, modify or reverse the law as it stands.

Cross & Cross Properties Ltd. v. Everett Allied Co., 886 F.2d 497, 504 (2d Cir. 1989) (citing International Shipping v. Hydra Offshore, Inc., 875 F.2d 388, 390 (2d Cir. 1989)).

As noted earlier, Rule 11 is "not intended to chill an attorney's enthusiasm or creativity in pursuing factual or legal theories." Fed.R.Civ.P. advisory committee's note to 1983 amendment. See, e.g., Cross & Cross Properties, 886 F.2d at 504; Greenberg v. Hilton Int'l Co., 870 F.2d 926, 935, remanded on reh'g, 875 F.2d 39 (2d Cir. 1989). Courts are "expected to . . . test the signer's conduct by inquiring what was reasonable to believe at the time the pleading, motion, or other paper was submitted." Fed.R.Civ.P. advisory committee's note to 1983 amendment.

In the instant case, the Government contends that plaintiffs' counsel has acted "unconscionably" in submitting "indefensible readings of the relevant documents" and in his "apparent lack of inquiry into the applicable statutes and case law." Def's Mem. of Law, at 14. The Government further alleges that in the months between the filing of plaintiffs' amended complaint and defendant's motion to dismiss and for sanctions, they

  attempted to persuade plaintiffs' counsel that the
  claims for declaratory and injunctive relief . . .
  could not stand, especially in light of this Court's
  prior ruling in this very matter. The Government

  alerted plaintiffs' counsel to the applicable law,
  furnished him with the relevant documents, and
  encouraged him to make a "reasonable inquiry" into
  the facts and the law so as to forestall a motion to
  dismiss and the attendant motion for sanctions. All
  these efforts failed.

Def's Mem. of Law at 16. In response to defendant's motion to dismiss and for sanctions, plaintiffs made their cross motion and submitted a memorandum consisting of two sentences in which two cases were cited, both inapposite.*fn17 In addition, plaintiffs' notice of cross-motion was submitted in violation of Local Rule 3(d) (requiring the moving party to specify the rule or statute upon which the motion is based). See supra note 3. In response to defendant's September 19, 1991 Reply Memorandum of Law, plaintiffs submitted their Second Memorandum of Law on October 7, 1991.*fn18 This Court agrees with defendant that counsel for plaintiffs failed to make the requisite "reasonable inquiry" to insure that his arguments were "warranted by existing law." Moreover, we find that Mr. Feinson advanced no "reasonable argument" to "extend, modify or reverse" existing law. A pre-requisite for "extending, modifying, or reversing the law as it stands" is a showing that counsel indeed knows where the law stands. By repeatedly asserting that the Supreme Court "eliminated the Anti-Declaratory Judgment and Anti-Injunction Sections of the Internal Revenue Code," plaintiffs' counsel did no more than vex his opponents and confound this Court.

Nowhere in his submissions has plaintiffs' counsel addressed the motion for sanctions against him. See supra note 8. This Court requested oral argument in an effort to give counsel an opportunity to oppose the motion for sanctions.*fn19 See Healy v. Chelsea Resources, 947 F.2d 611, 622 (2nd Cir. 1991) ("We are concerned . . . that [plaintiff] was not given a proper opportunity to oppose the motion for sanctions . . .") At oral argument, however, Mr. Feinson merely reiterated his position that the Anti-Injunction and Declaratory Relief Acts were no longer applicable. With regard to the motion for sanctions, counsel stated that he "sincerely believed" in his position. Transcript of Oral Argument, supra, at 17. Nonetheless, as noted earlier, a showing of "bad faith" is not required where the conduct of counsel is at issue. Cross & Cross Properties, 886 F.2d at 504; Eastway I, 762 F.2d at 243. Therefore, this Court finds the following submissions by Mr. Feinson violative of Rule 11: first, the resubmission of the claim for injunctive relief (Amended Complaint, November 9, 1990 Doc. # 17), which this Court had twice before found lacking in merit. See O'Malley, 896 F.2d at 709 ("The need to impose a sanction here was enhanced by [plaintiff]'s continuing to press the . . . claim after receiving advice to withdraw the suit . . . and after being warned by defendants that they would request a rule 11 sanction if he were to pursue the . . . claim. Continuing to press an obviously meritless lawsuit . . . further supports the imposition of a rule 11 sanction"). Second, his submission, in opposition to the Government's motion, of a frivolous cross-motion (September 16, 1991, Doc. # 28), which was violative of several provisions of the Local Civil Rules of this Court, specifically Rule 3(d) as earlier noted, and, assuming the cross motion was intended to be one for summary judgment, Rule 3(g) (requiring the submission of a statement of undisputed material facts), and finally, the submission of two memoranda of law (September 17, 1991, Doc. # 29; October 7, 1991, Doc. # 35) wherein counsel demonstrated an inexcusable misunderstanding of applicable law and existing precedents. Such behavior is precisely that which Rule 11 was intended to deter. See 5A C. Wright & Miller, Federal Practice and Procedure § 1331, p. 21 (2d ed. 1990). ("The certification requirement now mandates that all signers consider their behavior in terms of the duty they owe to the court system to conserve its resources and avoid unnecessary proceedings.").

In deciding to impose sanctions on Mr. Feinson, this Court takes no position either as to the sincerity or the contumacy of counsel. Rather, we find that for whatever reason, Mr. Feinson failed to satisfy the objective certification standard of Rule 11. In so doing, he failed to uphold his duty to conserve the resources of this Court. As the Supreme Court has stated: "[t]he essence of Rule 11 is that signing is no longer a meaningless act; it denotes merit. A signature sends a message to the district court that this document is to be taken seriously." Business Guides, 111 S.Ct. at 930.

Accordingly, this Court imposes Rule 11 sanctions against Mr. Feinson, in the amount of the costs and attorney's fees reasonably incurred by defendant's in filing their motions to dismiss and for sanctions and their response to plaintiffs' cross-motion.

B. The Imposition of Sanctions Against the Greenhouse

We now address the Government's motion for sanctions against plaintiffs Martin and Sherry Greenhouse. Before the Supreme Court's decision in Business Guides, Inc. v. Chromatic Communications, supra, "the rule in this circuit was that a represented party was subject to Rule 11 sanctions only upon a showing of subjective bad faith." United States v. International Brotherhood of Teamsters, supra, 948 F.2d at 1344 n. 3 (citing Greenberg v. Hilton Int'l Co., 870 F.2d at 934). In Business Guides, the Supreme Court changed the rule with regard to parties who sign pleadings, motions, or other papers: "we hold today that Rule 11 imposes an objective standard of reasonable inquiry on represented parties who sign papers or pleadings." Business Guides, Inc., 111 S.Ct. at 934-35. Though defendant's direct us to the October 19, 1990 Affidavit of Martin Greenhouse, See, Def.'s Mem. of Law at 14, we do not think that plaintiff's signature therein can supply a basis for the imposition of sanctions. The sanctionable submissions in this case are the Amended Complaint, (November 9, 1990, Doc. # 17), the Corrected Notice of Motion (the "cross-motion," September 16, 1991, Doc. # 28), and both the first and second memorandum of law (September 17, 1991, Doc. # 29; October 7, 1991, Doc. # 35). The Greenhouses did not sign any of these papers. As the Second Circuit noted in United States v. International Brotherhood of Teamsters, supra, 948 F.2d at 1344 n. 3, the question "[w]hether a subjective or objective standard applies to parties who do not sign such papers was left open by the Supreme Court." (emphasis added). See Business Guides, 111 S.Ct. at 935. ("We have no occasion to determine whether or under what circumstances a nonsigning party may be sanctioned."). Nevertheless, while the Supreme Court did not announce a specific standard, this Court understands Business Guides to have provided guidance in determining whether nonsigning parties have conducted themselves in such a way as to warrant the imposition of sanctions. In the instant case, plaintiffs' attorney is not being sanctioned on the basis of unsupportable facts in a pleading. If that were the case, then the Greenhouses would more likely be responsible for conveying such information to their attorney. See Business Guides, 111 S.Ct. at 932 ("Quite often it is the client, not the attorney, who is better positioned to investigate the facts supporting a paper or pleading."). Here, however, the sanctionable action of counsel was his failure to conduct a reasonable inquiry into the relevant law, his failure to advance a reasonable legal argument, and his resubmission of a claim that this Court had previously dismissed for lack of subject matter jurisdiction. Thus, the misconduct in this instance is with regard to the legal, not the factual basis for the submissions. As the Supreme Court stated in Business Guides:

  [R]epresented parties may often be less able to
  investigate the legal basis for a paper or a
  pleading. But this is not invariably the case. Many
  corporate clients, for example, have in-house counsel
  who are fully competent to make the necessary
  inquiry. Other party litigants may have a great deal
  of practical litigation experience. Indeed,
  [plaintiff in this case] Business Guides itself is no
  stranger to the courts; it is a sophisticated
  corporate entity that has been prosecuting copyright
  infringement actions since 1948. The most that can
  be said is that the legal inquiry that can reasonably
  be expected from a party may vary from case to case .
  . . Thus, the certification standard . . . is not
  inflexible. (emphasis added).

Business Guides, 111 S.Ct. at 933. We thus apply a flexible standard in determining whether to impose sanctions against the Greenhouses. We find that they are distinguishable from the sophisticated corporate plaintiff in Business Guides. Further, this Court has no evidence that the Greenhouses understood the basis for this Court's prior dismissals of their case. Nor have we any evidence that the Greenhouses read or would have understood the defects in their attorney's notice of motion and memoranda of law. Issues of subject-matter jurisdiction and motion practice are discretely legal creatures; they are not concepts that one expects a non-corporate/non-lawyer to comprehend. We therefore decline to impose sanctions against plaintiffs Martin and Sherry Greenhouse.*fn20


For the reasons set forth above, defendant's motion to dismiss the first through fifth claims in plaintiffs' amended complaint is granted. Plaintiffs' first through fifth claims in the amended complaint are thus dismissed with prejudice. Defendant's motion for sanctions is granted in part and denied in part. As against Mr. Feinson, the motion for sanctions is granted; however, the Court denies defendant's motion for sanctions against the Greenhouses. Defendant is directed to serve and file, within twenty (20) days of the date of this decision, an application detailing the costs incurred in preparing and filing their motion to dismiss and for sanctions as well as their opposition to plaintiffs' cross-motion.


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