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June 15, 2004.

HD Brous & Co., Inc. Petitioner,
Roman M. Mrzyglocki, Respondent.

The opinion of the court was delivered by: CHARLES HAIGHT, District Judge


Respondent Roman Mrzyglocki filed a statement of claim with the New York Stock Exchange on June 26, 2003 seeking arbitration of claims relating to an investment account he kept with petitioner, HD Brous & Co., Inc. ("Brous") from late 1996 until March of 1998. On October 3, 2003 Brous filed a petition in the Supreme Court of New York, New York County seeking to enjoin the arbitration. This petition came before me by means of respondent's Notice of Removal, which was filed with papers opposing the petition on October 23, 2003. Petitioner did not contest the removal, but did file a timely Reply in support of the petition on November 20, 2003. The Court conducted an oral argument on the petition on January 21, 2004. On February 26, 2004 the Court filed a Memorandum Opinion, Order, and Order to Show Cause, reported at Brous v. Mrzyglocki, No. 03 Civ. 8385, 2004 WL 376555 (S.D.N.Y., February 26, 2004) (the "February 26 Order"), familiarity with which is assumed.

After denying Brous's request for an order enjoining the arbitration, the February 26 Order raised a number of concerns regarding signed papers filed with and oral representations to the Court in connection with the petition. These concerns caused the Court to issue, sua sponte, an Order to Show Cause for potential sanctions against counsel for petitioner pursuant to Rule 11(c)(1)(B), Fed.R.Civ.P. Counsel for petitioner responded to this Order to Show Cause in papers timely submitted on May 25, 2004. The matter is now fully briefed. For reasons set forth below, the Court declines to initiate sanctions against counsel.

  In their Memorandum of Law in Response to [the] Order to Show Cause" (counsels' Response), counsel contend that this matter is governed by the Second Circuit's recent decision in In re Pennie & Edmonds LLP, 323 F.3d 86 (2d Cir., 2003). There, the Second Circuit addressed the "narrow issue concerning the applicable mens rea standard when a trial judge, sua sponte, initiates a post-trial Rule 11 sanction proceeding because a lawyer permitted a client to submit a false affidavit at an earlier stage of the litigation." In re Pennie, 323 F.2d at 87. A divided panel of the court of appeals held that, in these circumstances, "the appropriate standard is subjective bad faith." Id.

  As the Second Circuit notes, to levy sanctions, the text of Rule 11 only requires a finding that an attorney's actions were "objectively unreasonable." Id. at 89. Nevertheless, the court of appeals determined that the standard of objective unreasonableness applies to sanction procedures initiated by motion pursuant to Rule 11(c)(1)(A), Fed.R. Civ. P., but not to sanction procedures initiated by the court pursuant to Rule 11(c)(1)(B). Id. at 90. The principal rationale for this distinction is derived from to textual sources. The first is the fact that 11(c)(1)(A) provides a "safe harbor" provision, while 11(c)(1)(B) does not. The second is a sentence from the 1993 Advisory Committee Notes stating that "`[s]ince show cause orders will ordinarily be issued only in situations that are akin to a contempt of court, the rule does not provide a `safe harbor' to a litigant for withdrawing a claim, defense, etc., after a show cause order has been issued on the court's own initiative."' In re Pennie, 323 F.2d at 89-90. From these declarations, the Second Circuit appears to derive an intention on the part of the drafters to hold litigants to two separate standards of culpability for their signed submissions, depending upon who initiates sanction proceedings.*fn1

  It could be argued that the present case, which concerns maintenance of contradictory claims, misleading use of authority, misrepresentations of fact by counsel, and maintaining of a frivolous petition, is not within the scope of Pennie, which addressed only the "narrow issue" of an attorney "permitting a client to submit a false affidavit." In re Pennie, 323 F.2d at 87.*fn2 However, I decline to draw such a distinction in this case because I regard the Second Circuit's rationale as sufficiently broad to cover both sets of circumstances. Accordingly, I apply in this case the heightened standard of "subjective bad faith" established by the Second Circuit in Pennie.*fn3

  In the February 26 Order, the Court set forth four possible grounds for imposing sanctions against counsel: maintenance of contradictory claims, misleading use of authority, factual misrepresentations by counsel, and maintaining a frivolous petition. Brous v. Mrzyglocki, WL 376555 at *14-*18. The submissions that gave rise to the Order to Show Cause were, principally, the Reply brief submitted on behalf of petitioner, oral representations made in support of this Reply, and a letter from counsel dated January 28, 2004. Responsibility for the contents of the Reply brief might reasonably devolve upon Barry R. Temkin, Esq. and Efrem Fischer, Esq., both of whom are listed under the signature line as counsel of record on that document. Responsibility for oral arguments and for the January 28, 2004 letter can only fall on Temkin, who represented petitioner at the January 21, 2004 hearing and is the only person listed under the signature line on the January 28 letter.

  The specific acts and submissions that gave rise to the Order to Show Cause are set forth in combination with detailed analysis in the February 26 Order, and are not reiterated here. While I find nothing in counsels' Reply to dissuade me from reaching a determination that counsels' conduct was objectively unreasonable in several respects, the balance of evidence now in the record does not support a finding of subjective bad faith.

  Counsel acknowledge, in affidavits filed in support of their Reply, that their signed submissions contained serious mistakes of law and troubling errors in their use of authority. See e.g. Temkin aff. at ¶¶ 24, 28, 35, 36, 37; Fischer aff. at ¶¶ 10, 13. Counsel maintain, however, that these mistakes were not products of bad faith. On the record before the Court, there is no way to definitively determine whether the issues of concern identified in the February 26 Opinion are products of empty heads or impure hearts.*fn4 Under the directions of the Second Circuit in Pennie, use of this Court's sanctioning power would be inappropriate in this circumstance.

  In the concluding paragraph of his affidavit, Mr. Temkin avers that "I now recognize [that my conduct] was not in keeping with the highest standards of ethical conduct and professionalism expected of an attorney — or that I expect of myself." Temkin aff. at 18. This level of critical self-reflection driven by internal standards is also evident in Mr. Fischer's affidavit.

  In addition to the content and tone of their affidavits submitted to the Court, Mr. Temkin's and Mr. Fischer's career choices also provide ample evidence that they are diligent and ethical practitioners who regard the law as a professional calling rather than a field for gamesmanship.*fn5 Mr. Temkin served as an Assistant District Attorney in Bronx County for six years during the beginning of his career. He continues to exhibit a commitment to public service while in private practice, offering his advice and counsel to claimants and potential claimants to the Victims Compensation Fund.*fn6

  Mr. Fischer has adopted a similar path in the law, spending the early years of his career as an Assistant Attorney General for the State of New York, during which time he took advantage of numerous opportunities to make positive impressions on a number of judges in this Court. Both Messrs. Temkin and Fischer are also active members of the bar, showing dedication to the advancement of the profession and its members. These are noteworthy endeavors that speak well of counsel. Thus, it was more out of sorrow than in anger that this Court issued the February 26, 2004 Order to Show Cause. Having considered the responses of counsel, the Court is satisfied that further action both is not justified under the rule established in Pennie and would serve no positive purpose in this case. No cause having been found, no sanctions will issue. The matter is closed.

  It is SO ...

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