United States District Court, S.D. New York
November 17, 2004.
IN RE AUCTION HOUSES ANTITRUST LITIGATION. This Document Pertains to: ALL ACTIONS.
The opinion of the court was delivered by: RONALD ELLIS, Magistrate Judge
OPINION & ORDER
Before the Court is a motion by defendants A. Alfred Taubman
("Taubman") and Diana D. Brooks ("Brooks") for sanctions pursuant
to 28 U.S.C. § 1927 against class member Caleb B. Leys.
Defendants allege that Leys has prosecuted this litigation in
California and in this Court in a vexatious manner, and has
pursued claims which are frivolous, and maintained in bad faith.
They also allege that Leys has made misrepresentations to the
Court and engaged in dilatory tactics. Defendants seek
reimbursement for attorney's fees and costs in responding to
Leys's actions. For the reasons which follow, I find that
sanctions are appropriate, and direct that defendants submit an
accounting of expenses and attorney's fees within ten days of
In these consolidated cases, the plaintiff class brought suit
for damages resulting from a pattern of collusive and
anti-competitive practices by auction houses Sotheby's and
Christie's between about 1993 and 2000. In late October 2000,
this litigation culminated with preliminary entering of the
Sotheby's Settlement Agreement (the "Settlement
Agreement").*fn1 Leys is a member of the class encompassed in the Settlement Agreement. The
agreement released defendants, including Taubman and Brooks "from
any and all claims . . . based on any allegedly collusive
activity . . . by, between, or among" Sotheby's and Christie's.
Settlement Agreement at 12, ¶ 11.
According to the terms of the Settlement Agreement, any class
members who did not validly exclude themselves would release the
Auction Houses and their owners from any and all claims and
liability based on the activity alleged in the complaint in this
case. Id. The Settlement Agreement contained explicit language
requiring the parties to bring all subsequent actions related to
the claims in the Southern District of New York, and entitling
the Auction Houses to stay any action brought against them in
another court. Id. at ¶ 16. Jurisdiction over the
implementation and enforcement of the Settlement Agreement was
also vested in this District. Id. at ¶ 17.
On November 14, 2000, following preliminary approval of the
settlement in this case, the Court endorsed a specific opt-out
procedure for class members. Potischman Aff., Exh. 3. Under this
procedure, class members were required to return a "Request for
Exclusion" form by December 15, 2000. Id. at 2. This deadline
was later extended to January 5, 2001. Id., Exh. 4 Class
members who did not exclude themselves could otherwise file
written objections by that same date. Id. at 2. While Leys
concedes that he did not follow the established opt-out
procedure, he contends that he opted out of the settlement by
other means. On October 17, 2000, Leys had filed an individual lawsuit ("the
First Leys Action") in California state court against Sotheby's,
Christie's, Taubman, Brooks, and others. Potischman Aff., Exh. 6.
The complaint contained essentially the same claims as those
brought in this class action. Id. at 5-16. Three days after
filing the complaint, Leys filed a summary judgment motion. In
his motion, Leys admitted that he was a member of the class, but
was not satisfied with the proposed settlement. In granting
defendants' application to strike the summary judgment motion,
the court found plaintiff had filed summary judgment papers
prematurely, noting that they were filed before the defendants
had been served with the complaint. In its order, the court also
warned Leys that "any further frivolous filings would be
sanctioned." Id., Exh. 9, at 2.
In May 2001, the Court approved the Settlement Agreement.
Id., Exh. 2. On November 15, 2002, Leys filed "the Second Leys
Action" in California state court. Id., Exh. 11. That complaint
alleged nearly identical claims as the First Leys Action, and
again names Taubman and Brooks, along with other individual
defendants. Id. In February 2003, Taubman and Brooks removed
the Second Leys Action to the federal district court. Potischman
Aff., Exh. 12. On or about February 6, 2003, defendants' counsel
and Leys conferenced by telephone. Potischman Decl., at 6, ¶ 26.
During the call, counsel told Leys that his suit was barred by
the release in the Settlement Agreement, and asked him to dismiss
his complaint or, in the alternative, grant defendants an
extension of time to file a motion or answer the complaint. Id.
Leys indicated that he would agree to an extension if the case
were remanded to state court. Id.
Leys justifies his refusal to agree to additional time by
asserting that he "would have been inclined to grant an extension
but for defense counsel's arrogant, boorish and condescending attitude." Plaintiff's Opposition to A. Alfred
Taubman's Motion for Reimbursement of Attorneys' Fees and Costs
("Pl. Opp."), at 5. He claims that this "arrogance" led him to
conclude that "he would be unable to amicably work with
Defendants," because it "disallowed an atmosphere of cooperation
between the sides." Id. Defendants retained local counsel in
California and on February 7, 2003, filed a motion to transfer
venue to the Southern District of New York or, in the
alternative, to dismiss the case entirely. Potischman Aff., Exh.
12. They asserted that Leys was a member of the class bound by
the terms of the Settlement Agreement, and that exclusive
jurisdiction lay in the Southern District of New York over the
claims in the Second Leys Action. Id at 4-7.
Leys did not file a timely response to the motion. Nine days
after the deadline to file opposition papers, and five days
before a court ordered hearing on the motion, he filed an ex
parte application to extend his time to file a response.
Potischman Aff., Exh. 21. In his application, Leys stated that he
had notified defendants' counsel of his ex parte request and
that counsel had "not indicated any opposition thereto." Id. at
1. Elsewhere in the response, however, he stated that counsel for
defendant Diana Brooks had "emphatically denied" his request for
extension. Id. at 4.
In the application for an extension, Leys listed a number of
health problems which he claimed affected him, his mother and his
daughter, and which he claimed prevented him from properly
responding to the motion. Id. at 2. Despite these alleged
health issues, Leys was able to file a motion to remand to state
court (February 20), and a petition seeking to have the
California Attorney General intervene in the action (March 5)
during the same time frame. Potischman Aff., Exhs. 18, 20. The
court granted the extension, and Leys filed an opposition brief on March 10, 2003. Id., Exh. 22. In this opposition, Leys
first responded to defendants' position that he had not opted out
of the class. He asserted that he had voluntarily dismissed the
First Leys Action based upon the promise and understanding that
the claim would be resolved completely within four to six months,
but no later than the end of 2001. Id. at 2.
Leys maintained that he sufficiently conveyed his desire to opt
out of the class in this case. Id. at 3. Citing Rule 23(c) of
the Federal Rules of Civil Procedure, he argued that:
In order to opt out from being a class member of a
class action lawsuit, the request need not be
explicit, but the important question is whether
notice was communicated; a reasonable indication of
the desire to opt out is sufficient, since
flexibility is desirable in determining what
constitutes an expression of a class member's desire
to exclude himself, and any written evidence of the
opt out should be sufficient.
Id. He asserted that the filing of the First Leys Action
before the January 5, 2001 deadline to seek exclusion was
sufficient to notify all parties of his desire to opt out. Id.
He further claimed that he had a written agreement memorializing
his right to do so. Id.
On February 25, 2003, Taubman and Brooks filed a motion to stay
the California proceedings, and for other relief, including
reimbursement for attorney's fees and costs under
28 U.S.C. § 1927. Potischman Aff., Exh. 16. Leys did not make a timely
response to the motion. On March 12, 2003, Judge Kaplan granted
the motion to stay and referred the request for reimbursement of
attorney's fees and costs to the undersigned. Id., Exh. 15. In
his order granting the motion, Judge Kaplan found that Leys is a
member of the class, that he did not opt out, and that he is
bound by the terms of the Settlement Agreement. Id. Although
Leys defaulted on the motion for a stay, Judge Kaplan granted
leave for him to file a motion for reconsideration of the order
granting the stay. Id., Exh. 23. On April 16, 2003, Leys filed a motion seeking to set aside the
stay and to continue with the California case. Id., Exh. 24.
Two days after the motion to reconsider was filed, Taubman's
counsel sent a letter urging Leys not to file the motion because
it would not only be "untimely," but "frivolous and vexatious" as
well. Id., Exh. 25. Shortly thereafter, counsel for Brooks sent
a similar letter to Leys. Id., Exh. 26. Leys did not withdraw
his papers, and defendants were forced to file an opposition.
Id., Exh. 27.
In his motion to set aside the stay, and in his opposition to
the present motion for sanctions, Leys set forth additional
arguments on the opt out issue. Relying on the case of In re
Four Seasons Securities Law's Litig., 493 F.2d 1288 (10th Cir.
1974) ("In re Four Seasons"), he argued that "flexibility is
desirable" when determining whether a class member has
effectively communicated his desire to be excluded from the
class. Id., Exh. 24 at 4; Pl. Opp. at 3. Moreover, he continued
to maintain that there was an agreement to resolve his claims in
four to six months, and that the failure of defendants to meet
these "express conditions" left him free to file his individual
lawsuit. Potischman Aff., Exh. 24 at 3-4; Pl. Opp. at 5.
Defendants argued Leys is a member of the settlement class in
this case, that he never opted out of the class, and that he is
bound by the terms of the Settlement Agreement, which bars any
proceeding in California.
A. Authority for Imposing Sanctions Under 28 U.S.C. § 1927
Pursuant to 28 U.S.C. § 1927, "[A]ny attorney . . . who so
multiplies the proceedings in any case unreasonably and
vexatiously may be required by the court to satisfy personally
the excess costs, expenses, and attorney's fees reasonably
incurred because of such conduct." Section 1927 is applicable regardless of whether the attorney in
question is representing another party, or whether he is
proceeding pro se. See Sassower v. Field, 973 F.2d 75, 80
(2d Cir. 1992). "[A]n award under § 1927 is proper when the
attorney's actions are so completely without merit as to require
the conclusion that they must have been undertaken for some
improper purpose such as delay." Oliveri v. Thompson,
803 F.2d 1265, 1273 (2d Cir. 1986). A § 1927 award "must be supported by a
finding of bad faith," id., which can be established if the
attorney engaged in "objectively unreasonable" conduct. Forman
v. Mount Sinai Med. Ctr., 128 F.R.D. 591, 600 (S.D.N.Y. 1989).
To impose sanctions pursuant to § 1927, "the court's factual
findings must be characterized by a high degree of specificity."
Schlaifer Nance & Co., Inc., v. Estate of Warhol, 194 F.3d 323,
338 (2d Cir. 1999) (quoting Milltex Indus. Corp. v. Jacquard
Lace Co., 55 F.3d 34, 38 (2d Cir. 1995)). Thus, "[t]o impose
sanctions [under § 1927], the trial court must find clear
evidence that (1) the offending party's claims were entirely
meritless and (2) the party acted for improper purposes." Agee
v. Paramount Communications Inc., 114 F.3d 395, 398 (2d Cir.
1997). While a court considering the application of sanctions
pursuant to Federal Rule of Civil Procedure 11 focuses on
"particular papers, the inquiry under § 1927 is on a course of
conduct." Bowler v. I.N.S., 901 F. Supp. 597, 605 (S.D.N.Y.
"An attorney whom the court proposes to sanction must receive
specific notice of the conduct alleged to be sanctionable and the
standard by which that conduct will be assessed, and an
opportunity to be heard on that matter, and must be forewarned of
the authority under which sanctions are being considered, and
given a chance to defend himself against specific charges."
Sakon v. Andreo, 119 F.3d 109, 114 (2d Cir. 1997). Here, it is
the opinion of the Court, that the memorandum in support of the §
1927 sanctions gave Leys specific notice of the conduct alleged to be sanctionable, the standard by which that conduct would be
assessed and the authority under which sanctions were being
considered. His filing of a answer to that motion gave Leys a
sufficient opportunity to be heard and to defend himself. See
Vishipco Line v. Charles Schwab & Co., 2003 WL 1345229 at **3,
10 (S.D.N.Y. 2003) (holding that notice by opposing party's
motion to show cause, and opportunity to be heard by hearing and
opposition papers on that motion, were sufficient); D'Ascoli v.
Roura & Melamed, 2003 WL 22019730 at *3 (S.D.N.Y. 2003) (holding
that order to show cause and motion for sanctions was sufficient,
and that opportunity to respond to motion and telephone call
seeking a response were sufficient opportunity to be heard).
B. Imposition of Sanction Pursuant to § 1927
The Court is reluctant to impose sanctions where they might
discourage vigorous pursuit of valid claims. But where an
attorney so multiplies proceedings and engages in vexatious
conduct in bad faith the Court must impose its authority to curb
the abuse of the legal process and the waste of judicial
resources. Such bad faith conduct is evident in this case. Leys
has made arguments in support of claims, submitted in official
papers, that rely on factual misrepresentations, and questionable
legal analysis. He has failed to offer legal and factual
justification for those claims, and he has engaged in this course
of behavior for four years.
In prosecuting the Second Leys Action, Leys has pursued claims
in California that he should have known were, at least initially,
required to be brought before this Court. It is evident, and
Leys, by the terms of the Settlement Agreement, should have
absolutely known the following: that defendants were released by
class members who had not validly excluded themselves from the
class; that defendants, as released parties, were entitled to a
stay of any action in which they claimed the terms of the Settlement
Agreement as a defense; and that this Court retained jurisdiction
over any claim brought by a member of the class bound by the
terms of the Settlement Agreement.
Leys does not dispute that he failed to follow the clearly
defined opt-out procedure to exclude himself from the class bound
by the Settlement Agreement. Nor does he dispute that, because of
the time period in which he made purchases from the Auction
Houses, he was a member of the class prior to filing the First
Leys Action. Therefore, the primary issue to be determined for
purposes of sanctions is whether there was any reasonable good
faith belief by Leys that he was no longer a member of the class
bound by the terms of the Settlement Agreement when he filed the
Second Leys Action. The Court finds that there was not.
Leys's legal position that he "effectively opted out" of the
class by filing the First Leys Action can only be maintained by
the most cursory reading and interpretation of relevant law. His
reliance on the In re Four Seasons case is misplaced. In that
case, Bank of America had received notice of the settlement and
the required opt-out date. The bank made timely written and
telephone inquiries to find out if they could modify the terms of
the "Proof of claim" form they were required to return.
493 F.2d at 1289-90. These inquiries were not responded to until just
before the deadline to file a form for exclusion, when the bank
was told that a modified "Proof of claim" form would not be
accepted. Id. at 1290 The bank requested a form for exclusion
one day after the deadline to file. Id. Approximately fourteen
days later, the bank sent in a modified proof of claim form,
stating that if the modified form was not accepted, the bank
would regard itself as having opted out of the class. Id. The
trial court found that Bank of America had elected to remove
itself from the class. Id. The Tenth Circuit affirmed. Id. at 1292.
Leys argues that the circuit court endorsed the use of a
"flexible" approach to determine when communication of a desire
to opt out is sufficient. Id. at 1291; quoting 7A Wright &
Miller, Federal Practice and Procedure § 1787 (1972), 156
(discussing Bonner v. Texas City Independent School Dist. of
Texas, 305 F. Supp. 600 (S.D.Texas 1969 (teachers' testimony at
trial sufficient to constitute request to be excluded)). The
party seeking to opt out must give "[a] reasonable indication" of
its intent. Id. Leys submits that he clearly conveyed his
intent to be excluded from the class by filing the First Leys
While it is true that there is some language in the opinion
could be interpreted to support Leys's position, a broad reading
of the case on this issue is unwarranted. For example, the court
noted that Rule 23(c)(2) is designed to impose the "binding
effect of a judgment on members of a class who have not expressly
requested exclusion," and seeks "to eliminate the practice of
waiting to see if the adjudication was favorable to the class
before deciding whether to enter it." Id. Moreover, though Leys
argues theoretically that the rule does not specify how to
indicate a desire to be excluded, he completely ignores the fact
that there was a clearly defined procedure in this case. And
unlike the bank in In Re Four Seasons, he did not attempt to
comply with the procedures established by the Court. In contrast
to Leys, the bank made its position known in the forum court by
seeking to modify the claim form before the deadline expired. The
trial court found that counsel for the class knew prior to the
deadline that the bank intended to opt out. This good faith
effort at compliance supported the court's conclusion that the
bank had excluded itself from the class. The same cannot be said
of Leys. He has attempted to proceed on the kind of wait-and-see
basis condemned by the Tenth Circuit, and has sought to litigate
the issues in a different court.
Even if the Court were to find that Ley's position is supported
by the Tenth Circuit, it is contrary to well-established
authority in this and other circuits. See, e.g., In re
Prudential Securities, Inc. Ltd. Partnerships, 164 F.R.D. 362,
370 (S.D.N.Y. 1996) ("It is well established that `pendency of an
individual action' does not excuse a class member from filing a
valid request for exclusion.") (quoting Berman v. L.A. Gear,
Inc., No. 91 Civ. 2653, 1993 WL 437733 at *5 n. 1 (S.D.N.Y. Oct.
26, 1993), aff'd., 29 F.3d 621 (2d Cir. 1994)); see also
Supermarkets Gen. Corp. v. Grinnell Corp., 59 F.R.D. 512, 513
(S.D.N.Y. 1973), aff'd., 490 F.2d 1183 (2d Cir. 1974)
(individuals not excluded from class by mere fact of having filed
an independent action); Penson v. Terminal Transp. Co.,
634 F.2d 989, 996 (5th Cir. 1981) (observing that class action binds
absent class members who filed individual actions prior to final
judgment); In re VMS Ltd. Partnership Sec. Litig., 1992 WL
203832, at *3-4 (N.D.Ill. Aug. 13, 1992) (concluding that the
pendency of an individual action did not excuse class members
from filing valid opt-out request); Holmes v. CSX Transp., 1999
WL 447087, at *3-4 (E.D.La. June 24, 1999) (simply continuing
with a lawsuit, in a different court than a class action suit, is
not sufficient to provide the court overseeing the class action
suit with notice of plaintiffs's intent to opt-out of the class).
The Court must view the decision through the lens of § 1927. If
there were arguably some legal support for Leys's position, that
would be reason for the Court to find that his position was
reasonable enough to preclude a finding of bad faith on this
issue. See Nemeroff v. Abelson, 620 F.2d 339, 348 (2d Cir.
1980) ("A claim is colorable . . . when it has some legal and
factual support considered in light of the reasonable beliefs of
the individual making the claim."). Sanctions are thus not warranted where counsel supports his
position by reasonably relying on a relevant case. See
Pepsico. Inc, v. Dunlop Tire & Rubber Corp., 578 F. Supp. 196,
201 (S.D.N.Y. 1984) (at least one case supported defendant's
position; sanctions not appropriate under § 1927). Were he a
layman, Leys's dogged reliance on this Tenth Circuit case might
be excusable. However, given the existing case law, it was not
reasonable for an attorney to conclude that he could opt out of a
case in the Southern District of New York by filing a state court
case in California. There were specific governing provisions in
the Settlement Agreement, and specific case law in this district.
Yet, Leys seeks to rely on language from a single thirty-year old
case in a different circuit.
Leys's position is further undermined because he has shifted
arguments to suit his ends. For example, while he maintains that
he "effectively opted out" of the settlement class by filing the
First Leys Action, Pl. Opp. at 4., he argues that he subsequently
entered an agreement whereby he "would reenter the class, under
the condition that [his] interests would be resolved within 4 to
6 months from the date of signing the Agreement." Id. at 5.
Moreover, he argues that this side contract is "outside the
purview of [this Court]." Id. Not withstanding the crucial
nature of this document, Leys has failed to produce a copy of
this purported private, conditional settlement agreement, and
appears to admit that one does not exist.*fn2 Finally, this
novel concept that individual class members can enter into
agreements which somehow take precedence over established court procedures is put forth without any legal
The failure of Leys to produce any support for the alleged "4
to 6 month" condition indicates that this assertion is a
misrepresentation or an outright attempt to mislead the Court.
Leys's argument for allowing him to proceed with this action
against defendants outside of the Southern District is entirely
dependent on his establishing that he opted out of the settlement
class, and was therefore not bound by the terms of the Settlement
Agreement. The Court must either conclude that an attorney would
lose the one document crucial to his case or that no such
document ever existed. In the absence of any explanation from
Leys, the evidence points to the latter conclusion. The fact that
Leys has employed these tactics to avoid this Court's scrutiny of
his actions leads to the conclusion that he has proceeded in bad
It is clear that Leys engaged in a course of conduct designed
to evade the consequences of his agreement to participate in the
settlement of the instant case. With unreasonable and vexatious
conduct, he has caused defendants to incur excess costs, expenses
and attorney's fees in defending against the Second Leys Action
and having the matter properly brought before the Court, where it
should originally have been brought. The courts in the Second
Circuit have sanctioned such conduct pursuant to § 1927 in the
past. See, e.g., Burgos v. Murphy, 692 F. Supp. 1571, 1577-78
(S.D.N.Y. 1988) (awarding sanctions pursuant to § 1927 where
counsel prosecuted claims that he should have known to be
baseless and asserted claims without legal justification.),
aff'd 876 F.2d 890 (2d Cir. 1989) (table decision); Pentagen
Techs. Int'l., Ltd. v. United States, 172 F. Supp. 2d 464, 473-74
(S.D.N.Y. 2001) (finding § 1927 sanctions appropriate where
litigant filed successive lawsuits that were "designed to evade
previous rulings" and that caused "needless occupation of
judicial resources"); Durban Confectionary Works, Ltd. v. Schnapp's Confections., 1989 WL 139227, at *4
(S.D.N.Y. Nov. 15, 1989) (stating that party who agreed to
settlement but later engaged in conduct to undercut settlement
had "clearly evinced bad faith, and which, if he were a lawyer,
would be punishable under § 1927"); Forman v. Mount Sinai Med.
Ctr., 128 F.R.D. 591, 600 (S.D.N.Y. 1989) (granting sanctions
under § 1927 where attorney failed to communicate reasonably with
his adversary and the court, and engaged in conduct that
disrupted agreed terms of settlement).
Accordingly, I find that sanctions against Caleb P. Leys, under
28 U.S.C. § 1927, for unreasonably and vexatiously multiplying
proceedings by engaging in bad faith conduct in the pursuit of
baseless claims and making misrepresentations of fact to the
court for improper purposes. Therefore, the Court orders that
Leys should pay the reasonable costs, expenses, and attorney's
fees incurred by defendants in responding to the Second Leys
Action. For the Court to determine this amount, counsel for
defendants must submit an accounting of expenses and attorney's
fees within ten days from the date of this order, keeping in mind
that an assessment of attorney's fees "requires more than simply
a report of the number of hours spent and the hourly rate."
McGuire v. Russell Miller, Inc., 1 F.3d 1306, 1315 (2d Cir.
1993). The Court has the authority and reserves the right to
adjust the amount of the sanctions award as justice requires,
taking into account fairness and the ability of the sanctioned
party to pay. See Sassower v. Field, 973 F.2d at 81;
(citing Toliver v. County of Sullivan, 957 F.2d 47, 49-50 (2d
Cir. 1992); Johnson v. New York City Transit Authority,
823 F.2d 32, 33 (2d Cir. 1987); Faraci v. Hickey-Freeman Co., 607 F.2d 1025, 1029 (2d Cir.