The opinion of the court was delivered by: Rakoff, District Judge.
On January 8, 1999, the Court dismissed this action in its
entirety. See Order, Jan. 8, 1999. Although most claims in the
case were dismissed without prejudice, plaintiff's securities
fraud claim against defendants North Bronx Services Group, L.P.,
North Bronx Resources, Inc., and Medical Resources, Inc. ("the
North Bronx defendants"), purportedly brought under Section 10(b)
of the Securities Exchange Act, 15 U.S.C. § 78j(b), and Rule
10b-5 promulgated thereunder, was dismissed on the merits because
plaintiff was concededly neither a purchaser nor a seller of the
securities at issue in the claim, a basic requirement for
standing to bring such a claim, see Blue Chip Stamps v. Manor
Drug Stores, 421 U.S. 723, 749-55, 95 S.Ct. 1917, 44 L.Ed.2d 539
After dismissing the case, the Court, at defendant's request,
conducted the review of the record mandated by
15 U.S.C. § 78u-4(c)(1), a provision of the Private Securities Litigation
Reform Act of 1995 ("PSLRA") that requires courts, upon "final
adjudication" of claims brought under the Securities Exchange
Act, to determine whether the parties have complied with
Rule 11 of the Federal Rules of Civil Procedure.
15 U.S.C. § 78u-4(c)(1). Based on its preliminary review, the Court ordered
plaintiff's counsel, Marilyn Venterina, Esq., to show cause why
she should not be found in violation of Fed.R.Civ.P. 11(b)(2) for
filing a Rule 10b-5 claim on behalf of a plaintiff who lacked
standing. Upon hearing oral argument and reviewing the parties'
extensive written submissions, the Court now concludes that
plaintiff's counsel violated Rule 11 and that sanctions must be
At the threshold, plaintiff's counsel argues that § 78u-4(c)
has no application here because: (1) § 78u-4(c) applies only to
class actions, (2) the Court lacks jurisdiction to impose
sanctions after a case is dismissed, and (3) there was no final
adjudication triggering the review. None of these objections has
As to the first objection, § 78u-4(c), unlike certain other
provisions of the PSLRA that are limited to class actions,
applies to "any private action" arising under chapter 78 of Title
15, United States Code (the Securities Exchange Act). See
15 U.S.C. § 78u-4(c) (compare 15 U.S.C. § 78u-4(a)(1)). Thus,
there is no question that it extends to all 10b-5 claims, and not
merely to class actions. See Simon DeBartolo Group, L.P. v.
Richard E. Jacobs Group, Inc., 985 F. Supp. 427, 430-31 (S.D.N Y
As to the second objection, a court's power to impose sanctions
on litigants for violations of applicable rules does not
terminate upon the dismissal of a case. Rather, it is "well
established that a Court may consider collateral issues after an
action is no longer pending," Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384, 395, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990).
Finally, plaintiffs third objection — that a voluntarily
dismissal by the plaintiff pursuant to Rule 41(a)(1) is not a
"final adjudication" triggering mandatory Rule 11 review under
the PSLRA — is entirely irrelevant, since the dismissal of the
securities claim against the North Bronx defendants was ordered
by the Court on the merits.*fn1 Indeed, the Court not only
stated at oral argument that the claim would be dismissed "on the
merits," see Transcript, January 7, 1999, at 8, but also issued
a written order of dismissal explicitly stating that the claim
was dismissed "with prejudice" (rather than without prejudice, as
would be the case with a voluntary dismissal under Rule
41(a)(1)(i)). See Order, January 8, 1999, at 2. Although the
Clerk of the Court thereafter erroneously entered judgment
stating, inter alia, that the 10b-5 claim was dismissed
without prejudice, this clerical error, which contradicted the
clear words of the Court's order of April 7, 1999, was
subsequently corrected. See Amended Judgment.
Turning to the merits, it is settled law that only a purchaser
or seller of securities has standing to bring a claim under rule
10b-5. See Blue Chip Stamps, 421 U.S. at 749-55, 95 S.Ct. 1917;
Birnbaum v. Newport Steel Corp., 193 F.2d 461, 462-63 (2d Cir.
1952); John Labatt Ltd. v. Onex Corp., 890 F. Supp. 235, 247
(S.D.N.Y. 1995). Despite this longstanding rule, plaintiff's
counsel filed a 10b-5 claim against the North Bronx defendants
even though, as plaintiff's counsel now concedes, plaintiff
neither purchased nor sold the relevant securities during the
relevant period. Plaintiff's counsel argues that plaintiff
nonetheless had standing to sue under one or more alleged
exceptions to the purchaser/seller rule. This argument — never
advanced when dismissal itself was being argued — finds no legal
or factual support in this case.
Indeed, the precedents on which plaintiff's counsel now
purports to rely are entirely inapposite. Chiefly they state the
proposition that a plaintiff who is not the nominal purchaser or
seller of the securities in issue may sometimes still have
standing to bring a 10b-5 claim if the plaintiff is the real
party in interest. See, e.g., Benson v. RMJ Securities Corp.,
683 F. Supp. 359, 366-67 (S.D.N.Y. 1988) (trust beneficiaries have
standing to bring suits based on securities held by trust);
Grubb v. Federal Deposit Ins. Corp., 868 F.2d 1151, 1161-62
(10th Cir. 1989) (plaintiff who guaranteed loan used by holding
company to purchase stock had standing as "actual party at
risk"). Here, by contrast, plaintiff was essentially a bystander
with respect to the purchases and sales alleged in the Complaint.
While plaintiff's counsel also advances some other, still more
imaginative theories (such as a convoluted and farfetched analogy
to the "forced seller" doctrine) to try to bridge the obvious gap
between the standing requirements of Blue Chip Stamps and
plaintiff's actual situation in this case, none of her theories
remotely comports with either the letter or reasoning of Blue
Chip Stamps or with the other precedents on which she relies.
See, e.g., Dudley v. Southeastern Factor and Finance Corp.,
446 F.2d 303, 307 (5th Cir. 1971); Vine v. Beneficial Finance Co.,
374 F.2d 627, 634-35 (2d Cir. 1967). Further still, no factual
allegations in the Complaint support these newly-hatched
In short, plaintiff's counsel has substantially failed to
comply with Rule 11(b)(2) by filing a claim that is warranted
neither by existing law nor by a nonfrivolous argument for the
extension, modification or reversal of existing law. See
Fed.R.Civ.P. 11(b)(2); Int'l Shipping Co. v. Hydra Offshore,
Inc., 875 F.2d 388, 390-92 (2d Cir. 1989). As a result,
sanctions must be imposed. See 15 U.S.C. § 78u-4(c)(2).
Under the PSLRA, the presumptive penalty in such a circumstance
is "an award to the opposing party of the reasonable attorneys'
fees and other expenses incurred in the action."
15 U.S.C. § 78u-4(c)(3)(A)(ii).*fn2 Here, counsel for the North Bronx
defendants has submitted billing records demonstrating some
$26,418.75 in fees and costs incurred in defending this case,
see Affidavit of Patricia Hewitt dated March 19, 1999 ("Hewitt
Aff.") Ex. B at 4. Nevertheless, the Court declines to award this
entire amount, finding that plaintiff's counsel has shown that
such an award would be unjust and would impose an unreasonable
burden on plaintiff's counsel that is greater than the burden
that failing to make the award would impose on the opposing
party. See 15 U.S.C. § 78u-4(c)(3)(B)(i).
Some sanction is nonetheless required, see
15 U.S.C. § 78u-4(c)(3)(C), "sufficient to deter repetition of [the
offending] conduct or comparable conduct by others similarly
situated." Fed.R.Civ.P. 11(b)(2). With these principles in mind,
the Court concludes that an award of $5,000.00 is appropriate.
This amount, which is approximately one-fifth of the total
expenses incurred, reflects not only the fact that the violation
infected one of five counts asserted against the North Bronx
defendants but also, more generally, the need for deterrence and
the need to award some measure of compensation to the ...