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CENTER CADILLAC, INC. v. BANK LEUMI TRUST CO.

February 10, 1995

CENTER CADILLAC, INC., CENTER CADILLAC LEASING, INC., IRWIN STEINHAUSER, ELAINE STEINHAUSER, MICHAEL STEINHAUSER, MARLEEN STEINHAUSER, MARILYN STEINHAUSER, JOSH STEINHAUSER as Administrator of the Estate of MARVIN STEINHAUSER, JAMES SANDLER and ROSALYN SANDLER, Plaintiffs,
v.
BANK LEUMI TRUST COMPANY OF NEW YORK, MARTIN A. SIMON, ELIOT S. ROBINSON, LEONARD S. LEVINE, EFTIHIA PIPER, VINCENT GARVEY, and RACHEL BERGSOHN, Defendants.



The opinion of the court was delivered by: CONSTANCE BAKER MOTLEY

 MEMORANDUM OPINION

 DEFENDANTS' MOTION FOR COUNSEL FEES AGAINST PLAINTIFFS

 This case arises out of a $ 1.1 million loan extended to plaintiffs in 1979. As of early 1990, the principal balance had been reduced to approximately $ 118,000. Rather than satisfy this obligation, plaintiffs initiated three years of protracted, expensive and highly contentious litigation, which resulted in this court granting summary judgment for the defendants and issuing an order awarding Bank Leumi the principal balance of the loan, plus interest, and attorney's fees and costs. The court rendered its opinion on July 28, 1994 and it did not address the specific amount to be awarded as attorney's fees and costs to defendants since no hearing on same had been held or as to the amount recoverable as costs and expenses incurred in connection with this litigation under the loan agreements between the parties. Based upon the submission of papers by both sides, this court finds and concludes that defendants are entitled to attorney's fees and costs under the August 9, 1979 collateral promissory note or, alternatively on 28 U.S.C. § 1927 and the inherent power of the court.

 Defendants have now requested reimbursement for counsel fees, costs and expenses paid to Parker Chapin for legal services provided from December 1990 through December 1994 in the amount of $ 234,631.96 in fees and $ 28,324.69 in costs. For the following reasons, defendants' motion is granted.

 Discussion

 This court finds that the very terms of the promissory note signed by plaintiffs entitles defendants to recover all attorney's fees and costs. The collateral promissory note dated August 9, 1979 provides that:

 It is apparent from the clear language of the note that plaintiffs must reimburse the defendants for the reasonable value of all related attorney's fees and costs in connection with this litigation which was essentially brought to prevent defendants from collecting on its loan.

 In the alternative, attorney's fees may be awarded to the defendants based on this court's inherent power and on 28 U.S.C. § 1927 which impose excess costs and attorney's fees on an attorney who "multiplies the proceedings in any case unreasonably and vexatiously." As an exception to the American Rule, the inherent power of the court allows the court to award reasonable attorneys' fees to the prevailing party when the opposing party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons.." Oliveri v. Thompson, 803 F.2d 1265, 1272 (2d Cir. 1986) (citing to F.D. Rich Co., Inc. v. United States ex rel. Industrial Lumber Co., Inc., 417 U.S. 116, 129, 40 L. Ed. 2d 703, 94 S. Ct. 2157 (1974)); United States. v. International Brotherhood of Teamsters, 948 F.2d 1338, 1345 (2d Cir. 1991); Agee v. Paramount, 869 F. Supp. 209, 1994 WL 677904 (S.D.N.Y. 1994) (Motley, J.); Wood v. Brosse U.S.A., Inc., 149 F.R.D. 44, 48 (S.D.N.Y. 1993); Mopaz Diamonds v. Institute of London Underwriters, 822 F. Supp. 1053, 1057 (S.D.N.Y. 1993).

 The standard is the same for awarding attorney's fees under 28 U.S.C. § 1927. "We hold today that an award made under § 1927 must be supported by a finding of bad faith similar to that necessary to invoke the court's inherent power." Oliveri, 803 F.2d at 1273. In considering whether there has been bad faith, the court can consider the manner in which the action was brought and the manner in which it was litigated. Oliveri, 803 F.2d at 1272. However, the Second Circuit requires that there be "clear evidence" that the opposing party's actions were taken to harass, delay the proceedings, or for otherwise inappropriate reasons. Dow Chemical Pacific Ltd. v. Rascator Maritime S.A., 782 F.2d 329, 344 (2d Cir. 1986).

 This court finds and concludes that the plaintiffs' actions were undertaken in bad faith in bringing the entire action. Plaintiffs had ample opportunity to demonstrate some colorable basis for their claims through discovery but were unable to do so. Indeed, the complaint and other papers filed in this case were filled with accusations which collapsed under the burden of scrutiny. For example:

 
1. Plaintiffs alleged that Bank Leumi perpetrated a massive "prime rate fraud" against them and other customers of the bank (Compl. P 77). In response to deposition questions and interrogatories, and finally at the April 26, 1994 pretrial conference, plaintiffs were compelled to admit that they had no evidence to support this claim.
 
2. Plaintiffs asserted that Bank Leumi committed fraud by breaching an "oral" agreement to charge interest at the rate of 1.5% over prime. Plaintiffs were forced to admit that there was absolutely ...

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