Rotter nevertheless contends that the sale of the 30
March contracts cannot be considered "in isolation," but must be
viewed in light of the alleged violations in the manner in which
Leahy filled out his trading card, of the fact that Rotter was
unable to obtain confirmation of the prices at which the Order was
filled over the phone, and of the alleged discrepancies between the
prices at which the Order was filled and the times at which such
prices were being quoted in the pit at the NYMEX. Yet, even
construing the facts in the light most favorable to Rotter, these
facts only possibly implicate Leahy; none implicates Maloney in any
way. The facts that are in dispute are simply not material to
Maloney's motion. Thus, even if the evidence from Johnston were
deemed to be admissible against Maloney, it would still be
insufficient as a matter of law to support a claim of fraud based
on a prearranged trade. Summary judgment is therefore appropriate.
C. Sanctions Will Not Be Granted
Maloney also seeks sanctions under Rule 11 of the Federal
Rules of Civil Procedure, on the grounds that the action is
frivolous because it is clearly barred by the statute of
limitations and because it is based entirely on an inadmissible and
irrelevant statement attributed by Johnston to Leahy.
Rule 11 places an affirmative duty on each attorney to
conduct reasonable inquiry into the viability of a pleading before
it is signed. See Eastway Constr. Corp. v. City of New York,
762 F.2d 243, 254 (2d Cir. 1985). Simply put, an "attorney must `stop,
look and listen' before signing a document subject to Rule 11."
Adamson v. Bowen, 855 F.2d 668, 673 (2d Cir. 1988) (quoting Lieb v.
Topstone Indus., Inc., 788 F.2d 151, 157 (3d Cir. 1987)).
As the Second Circuit held in Eastway, Rule 11 is
triggered and an attorney and/or his client may be sanctioned when
it appears that a pleading has been interposed for any improper
purpose, or where, after reasonable inquiry, a competent attorney
could not form a reasonable belief that the pleading 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. See Eastway, 762 F.2d at 254; see also O'Malley v. New York
City Transit Auth., 896 F.2d 704, 705 (2d Cir. 1990). Therefore,
in applying Rule 11, a court must assess whether an attorney's
conduct was objectively reasonable at the time he or she signed the
pleading, motion, or other paper. See International Shipping Co.
v. Hydra Offshore, Inc., 875 F.2d 388 (2d Cir. 1989); Oliveri v.
Thompson, 803 F.2d 1265, 1274-75 (2d Cir. 1986); Wood v. Brosse
U.S.A., Inc., 149 F.R.D. 44, 48 (S.D.N.Y. 1993).
The substantive requirement imposed on an attorney or
party by Rule 11 is that "[p]leadings, motions, and other papers be
justifiable at the time they are signed." United States v.
International Bhd. of Teamsters, 948 F.2d 1338, 1344 (2d Cir.
1991). It follows, then, that a court must neither "allow
hindsight to skew judgment" nor "countenance belated
rationalizations concocted to conceal chicanery." Id. Moreover,
the court in Eastway concluded that Rule 11 sanctions are
appropriate "where it is patently clear that a claim has absolutely
no chance of success under the existing precedents, and where no
reasonable argument can be advanced to extend, modify or reverse
the law as it stands. . . ." Eastway, 762 F.2d at 254.
Sanctions must, however, be imposed carefully, lest they chill the
creativity essential to the evolution of the law. See Murphy v.
Cuomo, 913 F. Supp. 671, 682 (N.D.N.Y. 1996); see also Knipe v.
Skinner, 19 F.3d 72, 78 (2d Cir. 1994)
Sanctions are not appropriate here. As set forth above,
factual ambiguities prevent a determination at this time that the
statute of limitations had run on Rotter's claims against Maloney
at the time this action was initiated. And, while
summary judgment is appropriate due to Rotter's failure to produce
any admissible evidence with regard to Maloney, at the time of the
filing of the action Johnston's affidavit provided Rotter's counsel
with a reasonable belief that a colorable claim of fraud existed.
That after discovery, such claim is revealed to be without evidentiary
support is not a sufficient basis on which to impose sanctions.*fn4
For the reasons set forth above, Johnston's motion to
dismiss is denied. Leahy's motion to amend his TPC and his answer
to the Complaint, save for the tenth affirmative defense, is
granted. Maloney's motion to dismiss is granted and his motion for
sanctions is denied. Leahy's amended answer and TPC shall be
served on all parties and filed with the clerk of the court within
twenty days of the date of this opinion.
It is so ordered.