The opinion of the court was delivered by: Stanton, District Judge.
This case is here on remand from the United States Court of
Appeals for the Second Circuit, which affirmed the dismissal of
Mr. Gurary's federal complaint alleging securities market
manipulation in violation of section 10(b) of the Securities
Exchange Act of 1934 and the SEC's Rule 10b-5, Gurary v.
Winehouse, 190 F.3d 37 (2d Cir. 1999) (Gurary I), and
directed the imposition of sanctions with respect to claims
predicated on his first two purchases, but not with respect to
his remaining two purchases, id. 235 F.3d 792 (2d Cir. 2000)
(Gurary II). Familiarity with those opinions is assumed.
Mr. Gurary claimed that the value of Nu-Tech shares he had
purchased was depressed by a short-selling conspiracy initiated
by the defendant Winehouse, and tolerated or concealed by the
defendant Nu-Tech. However, his four purchases failed to support
his federal securities-law claim: the first took place before
the market manipulation began, the second (being at a lower
price than the fair value of the stock, because of the
artificial depression of the price) failed to present a
cognizable damage claim, and he did not plead that Nu-Tech's
chairman Feigenbaum was lying when, before Gurary made the final
two purchases, Feigenbaum told him that he could and would
compel Winehouse to stop the short sales. Thus, the summary
dismissal of his claim was affirmed. Gurary I, 190 F.3d 37.
The substantial failure of Gurary's complaint to comply with
Fed.R.Civ.P. 11(b) invoked the presumption required by the
Private Securities Litigation Reform Act of 1995 ("PSLRA"),
15 U.S.C. § 78u4(c)(3)(A), which provides that
. . . the court shall adopt a presumption that the
appropriate sanction —
(ii) for substantial failure of any complaint to
comply with any requirement of Rule 11(b) of the
Federal Rules of Civil Procedure is an award to the
opposing party of the reasonable attorneys' fees
and other expenses incurred in the action.
(B) Rebuttal Evidence. The presumption described in
subparagraph (A) may be rebutted only upon proof by
the party or attorney against whom sanctions are to
be imposed that —
(i) the award of attorneys' fees and other expenses
will impose an unreasonable burden on that party or
attorney and would be unjust, and the failure to
make such an award would not impose a greater
burden on the party in whose favor sanctions are to
be imposed; or
(ii) the violation of Rule 11(b) of the Federal
Rules of Civil Procedure was de minimis.
(C) Sanctions. — If the party or attorney against
whom sanctions are to be imposed meets its burden
under subparagraph (B), the court shall award the
sanctions that the court deems appropriate pursuant
to Rule 11 of the Federal Rules of Civil Procedure.
Thus when the failure to comply with Rule 11 is substantial,
the whole costs and attorneys' fees of the adversary are awarded
as the sanction, unless plaintiffs attorney*fn1 proves that
the burden on him will be unreasonable and unjust, or that the
violation was de minimis.
This represents a change from the general law concerning
sanctions, and the creation by Congress of a special rule
"strengthening the application of Rule 11 of the Federal Rules
of Civil Procedure in private securities actions" (H.R. Conf.
Rep. No. 104-369, p. 39 (Nov. 28, 1994)) in light of Congress'
perception that courts often failed to ...