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April 17, 2001


The opinion of the court was delivered by: John S. Martin, Jr., United States District Judge.


In January 2000, Four Star Financial Services LLC, ("Plaintiff") invested $11,750,000 in an investment program that was to be managed by the Defendant Martin D. Fife ("Fife"). The following July, $7,000,000 was returned to Plaintiff by the Defendants. Between November 2000 and the end of January 2001, Defendant Fife repaid Plaintiff an additional $2,600,000.

On February 22, 2001, Plaintiff filed an ex parte application for a writ of attachment based on a Verified Complaint that stated: "Defendants are indebted to the Plaintiff in the amount of at least $11,500,000, plus interest and profits in an amount represented by Defendants to be in excess of $7,000,000." (Compl. ¶ 33.) To its great regret and embarrassment, the Court granted Plaintiff's application for a writ of attachment directed to each Defendant in the amount of $11,500,000.

The question that naturally arises is: "How could the Court grant Plaintiff a writ of attachment in the amount of $11,500,000 when the Plaintiff had made an investment of only $11,750,000 and $9,600,000 had already been returned?" The answer is that the papers in support of the application were false and misleading.

Not only did the Verified Complaint fail to mention the $9,600,000 that had been repaid to Plaintiff, but it conveyed the impression that there had been no repayment despite repeated assurances that the invested money would be returned. Indeed, paragraph thirty-two of the Verified Complaint contains the false statement: "No funds have been received by Plaintiff." (Compl. ¶ 32.)

The Verified Complaint was also totally misleading in its attempt to convey a factual predicate for the allegation that the Defendants were about "to attempt to abscond with the funds identified above with the intent to defraud Plaintiff." (Compl. ¶ 5.) In this regard, the Verified Complaint conveyed a picture of Defendants as itinerant swindlers without roots in New York who continuously promised to return Plaintiff's investment but never made any of the promised payments.

In support of the claim that Defendant Fife was about to abscond with its funds, the Verified Complaint stated: "Fife has no real estate or permanent residence in his name within the State of New York." (Compl. ¶ 11.) While this statement might be literally true, Plaintiff's general counsel, who swore to the Verified Complaint, knew that Fife lived with his wife, a former Deputy Mayor of the City of New York,*fn1 in an apartment on Central Park West which was held in her name. The Verified Complaint also made no mention of Fife's membership on the Boards of the Dreyfus Fund Incorporated and several of its affiliated funds.

The Court did not learn that Plaintiff and its counsel had mislead it into granting an unwarranted writ of attachment until it received motions from Defendants Fife and Sullivan seeking to vacate the attachment. After hearing argument from the parties, the Court granted the motions to vacate the attachment, invited Defendants to submit an application for attorneys' fees against the bond, and directed Plaintiff's counsel and its general counsel to show cause why they should not be sanctioned under Rule 11 of the Federal Rules of Civil Procedure and why the Court should not refer their conduct to the appropriate bar associations. (Hereinafter, Plaintiff's attorney in this action and its general counsel will be collectively referred to as Respondents.)

At a subsequent hearing, the Court granted the applications of defense counsel to recover against the bond fees and expenses totaling $70,513.53, but reserved decision on the question of Rule 11 sanctions.


A. The Rule 11 Standard

In considering the issue of sanctions in this case, it is appropriate to start with the observation of Judge Pratt in Oliveri v. Thompson, 803 F.2d 1265, 1267 (2d Cir. 1986)

Most lawyers who litigate in our federal courts perform their function at a commendable level of professionalism, advancing claims and defenses with the zeal of a trained advocate, but properly tempering enthusiasm for a client's cause with careful regard for the obligations of truth, candor, accuracy, and professional judgment that are expected of them as officers of the court. Because, we suppose, in a system as large and diverse as our federal court system, it is inevitable that a few attorneys will occasionally fall short in these professional obligations, sanctions against attorneys play a limited but necessary role in the administration of our civil justice system. Severe forms of misconduct have traditionally been subject to contempt citations, review by bar association grievance committees, and in extreme cases, suspension or disbarment. In recent years, however, increasing attention has been focused upon lesser sanctions as a means of fine-tuning our litigation system to weed out some of its abuses and to improve its dispute-resolving function.

In their response to the Order to Show Cause, Respondents admit that the Verified Complaint contains misstatements of fact and acknowledge an understanding of why the Court would consider it misleading and be upset by their conduct. They contend, however, that they acted in good faith on the belief that they had been defrauded by Defendants, and that Defendants had told them that they were ...

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