nothing in Drexel's prior dealings with LACO or Drexel's dealings with Graphic's new board of directors (of which Board LACO was not a member) which would provide a reason to call into question Graphic's business purpose in retaining Drexel. Once again, Azurite, without any evidence to support its contention, asks that a speculative inference be drawn from a transaction that is neither illegal nor whose circumstances objectively give rise to a reasonable suspicion. Thus, there is simply no evidence to support that the conspiracy Azurite claims existed, existed because Graphic's new board retained Drexel to liquidate its assets.
On the record before me and drawing all reasonable inferences in Azurite's favor, I must grant defendants' motion for summary judgment and dismiss Azurite's §§ 13(d) and 10(b) claims. I also deny Azurite's motion to amend its original complaint to include more specific allegations of § 10(b) violations. Although Rule 15 makes clear that leave to amend must be freely granted, it may be denied when the amendment would be futile. See Foman v. Davis, 371 U.S. 178, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962). As my discussion reveals, Azurite's proposed amendment would be futile because the factual foundations of Azurite's new allegations are insufficient, as a matter of law, to withstand defendants' motion for summary judgment. I therefore deny Azurite's leave to amend the complaint.
I have provided Azurite with ample opportunity to explore and develop a factual foundation for its §§ 13(d) and 10(b) claims. This case has come before me after lengthy and exhaustive litigation between the SEC and LACO on the legality of Amendments 5, 6, and 7 to LACO's 13D filing. The SEC enforcement proceedings produced voluminous and exhaustive discovery on the issue of LACO's 13D amendments which defendants made available to Azurite. I also permitted Azurite to conduct further discovery on its claim that Milken and other Drexel employees had provided LACO with insider information to take over Graphic in order to get back at Yampol. Thus, Azurite has had every reasonable opportunity to explore the only avenue that, arguably, the SEC failed to exhaust in its two-year investigation and subsequent enforcement action.
The result of Azurite's discovery is a fascinating but wholly unsupported story of insider trading and machinations between LACO and Milken. Every single deposition as well as every last page of documentary evidence points to the same ineluctable conclusion: after exploring all of the available alternates, defendants reluctantly decided to wage a proxy battle for Graphic on or after February 28, 1986.
Simply put, Azurite has failed to introduce competent or admissible evidence that could lead a trier of fact to reasonably conclude that defendants filed false, misleading or materially deficient Amendments to their Schedule 13D filing. Similarly, Azurite has failed to proffer any competent evidence that could lead a reasonable trier of fact to find that Drexel or any of its employees provided defendants with non-public information about Graphic.
One last issue concerns me here. Defendants move for the imposition of sanctions against Azurite and its counsel under Rule 11 and 28 U.S.C. § 1927. I agree with Azurite that sanctions are inappropriate in this case for the reasons expressed by the Second Circuit in Mareno v. Rowe, 910 F.2d 1043, 1047 (2d Cir. 1990), cert. denied, 498 U.S. 1028, 112 L. Ed. 2d 673, 111 S. Ct. 681 (1991):
To constitute a frivolous legal position for purposes of Rule 11 sanction, it must be clear under existing precedents that there is no chance of success and no reasonable argument to extend, mollify or reverse the law as it stands. Thus, not all unsuccessful legal arguments are frivolous or warrant sanction. The positions advance by Mareno and his attorney, however faulty, were not so untenable as a matter of law as to necessitate sanction. Nor did they constitute the type of abuse of the adversary system that Rule 11 was designed to guard against.
In this case, Azurite argued unsuccessfully that I should revisit Judge Haight's holding that Schedule 13D disclosures must be made only where a party has made a decision to wage a proxy fight. I have rejected this argument on the basis of Judge Haight's opinion in Amster & Co. and Judge Pollack's decision in Todd Shipyards Corp. However, Azurite's good faith attempt to convince me that I should reject Judge Haight's legal analysis and interpretation of the deposition and documentary evidence, does not render Azurite's argument frivolous or patently unreasonable; rather, it simply means that I was unconvinced by the argument.
Similarly, sanctions under 28 U.S.C. § 1927 are inappropriate. Section 1927 serves to deter unwarranted delays in litigation. See United States v. Int'l Bhd. of Teamsters, 948 F.2d 1338, 1345 (2d Cir. 1991). Azurite's behavior during discovery has been both restrained and reasonable. Azurite accepted the discovery by the parties in the SEC enforcement action, required only six short depositions on its insider trading claims and issued some document production requests. Although the added discovery proved ultimately unhelpful, Azurite in no way unreasonably extended the life of this litigation or engaged in an unwarranted fishing expedition. I, therefore, deny defendants' motion for the imposition of sanctions.
For the reasons stated above, defendants motion for summary judgment under Rule 56 on Azurite's 13(d) and 10(b) claims is GRANTED and the complaint is DISMISSED. Azurite's motion to amend its complaint pursuant to Rule 15 is DENIED with PREJUDICE. Defendants' motion to impose sanctions on Azurite and its counsel under Rule 11 or, alternatively, under 28 U.S.C. § 1927 is DENIED. I hereby order the Clerk of the Court to DISMISS the Complaint with PREJUDICE.
Dated: New York, New York
January 31, 1994