United States District Court, S.D. New York
August 19, 2005.
ASSOCIATION OF HOLOCAUST VICTIMS FOR RESTITUTION OF ARTWORK AND MASTERPIECES, a/k/a "AHVRAM," ET AL., Plaintiff
BANK AUSTRIA CREDITANSTALT AG, ET AL. Defendants.
The opinion of the court was delivered by: SHIRLEY KRAM, Senior District Judge
OPINION & ORDER
Bank Austria Creditanstalt AG ("Bank Austria"), pursuant to
Federal Rules of Civil Procedure ("Fed.R.Civ.P.") 12(b)(1) and
12(b)(6), moves to dismiss Plaintiff's First Amended Complaint
("Complaint"). Plaintiff opposes the motion to dismiss and "cross
moves" for jurisdiction discovery, preservation of evidence,
depositions de bene esse, limited production of documents,
and other relief [sic]. Additionally, Defendant moves for
sanctions pursuant to Fed.R.Civ.P. 11.
Beginning in 1998, several individual and class actions were
filed against certain Austrian banks, including Bank Austria and
Creditanstalt, in both the Southern and Eastern Districts of New York, alleging that "the
defendant banks had committed various torts and violations of
international law arising out of the activities of the Nazis
during and after World War II." In re Austrian and German Bank
Holocaust Litig., 80 F. Supp. 2d 164 (S.D.N.Y. 2000). All of the
actions were then consolidated into a single class action ("Class
Four years ago, this Court approved a Class Action Settlement.
In re Austrian and German Bank Litig., 80 F. Supp. 2d 164 (the
"Bank Austria Settlement" or "Settlement"). The decision was
affirmed by the Court of Appeals. D'Amato v. Deutsche Bank,
236 F.3d 78 (2d Cir. 2001). The $40 million settlement paid by Bank
Austria was deposited into the Court's designated settlement fund and has
been used to pay Holocaust survivors and their heirs.
I. This Case Is Dismissed For Lack Of Subject Matter
After first circulating a draft of his Amended Complaint to
journalists in Vienna, Austria, Mr. Fagan filed the instant
action on May 11, 2004. See Memorandum of Law In Support of
Defendant Bank Austria Creditanstalt AG's Motion To Dismiss The
First Amended Complaint, dated November 8, 2004, at 8 n. 8.
Because he failed to properly serve the Defendant, he was given
additional time to file an amended pleading, which he did on
October 15, 2004. Initially, however, there was some confusion
regarding the amended filing because Mr. Fagan had captioned it
incorrectly. Finally, the motion to dismiss was fully briefed on
January 6, 2005.
Because the procedural defects in this case are dispositive, no
factual background will be provided. Plaintiff relies upon two
alleged bases for subject matter jurisdiction: (1) the "laws of
the City and State of New York, as well as violations of laws of
nations and treaties of the United States," (Am. Compl. ¶ 49)
and, "violations of International Law, including those as
articulated and established by the International Court of
Justice, the Law of Nations, Jus Cogens [sic], treaties entered into by the
United States and/or to which the United States is a signatory
and are and have been declared cognizable and actionable in the
Second Circuit." (Id. ¶ 53); and (2) this case "in part calls
for the Court to enforce and/or act upon certain aspects of" the
prior Settlement Agreement in In Re Austrian and German Bank
By statute, "the district courts shall have original
jurisdiction of all civil actions arising under the Constitution,
laws, or treaties of the United States." See 28 U.S.C. § 1331.
It is axiomatic that jurisdiction exists only "when a federal
question is presented on the face of the plaintiff's properly
pleaded complaint." Caterpillar Inc. v. Williams, 482 U.S. 386,
392 (1987). A well-pleaded complaint must establish "either that
federal law creates the cause of action or that the plaintiff's
right to relief necessarily depends on a resolution of a
substantial question of federal law." Frazier v. Turning Stone
Casino, 254 F. Supp. 2d 295, 302 (N.D.N.Y. 2003). See also
Princz v. Fed. Rep. Of Germany, 26 F.3d 1166, 1176 (D.C. Cir.
1994) (complaint seeking Holocaust reparations for plaintiffs' concentration camp injuries sounded in tort and quasi
contract, not federal law).
The Amended Complaint in this case does not assert any federal
law claims, nor is any question of federal law, much less a
substantial one, implicated by the common law claims the Amended
Complaint seeks to plead.*fn3 Amazingly, apart from two
passing references to international and treaty law, the Amended
Complaint fails to make any specific reference to any federal
law. Accordingly, Plaintiff's first proffered basis for
jurisdiction is without merit.
Plaintiff's second alleged ground for subject matter
jurisdiction, namely that this case "in part calls for the
Court to enforce and/or act upon certain aspects of" the prior
Settlement Agreement in In Re Austrian and German Bank Holocaust
Litig., is not only without legal basis, it is little more than
an end run around the Bank Austria Settlement. While this Court,
in its Final Order and Judgment in the Bank Austria settlement,
did expressly retain "continuing jurisdiction over the Settlement
and Settlement Agreement," see Final Order and Judgment ¶ 5, that
settlement cannot confer subject matter jurisdiction here because
this is an entirely separate action requiring an independent
jurisdictional basis. See, e.g., Peacock v. Thomas,
516 U.S. 349, 355 (1996) ("In a subsequent lawsuit involving claims
with no independent basis for jurisdiction, a federal court lacks
the threshold jurisdictional power that exists when ancillary
claims are asserted in the same proceeding as the claims
conferring federal jurisdiction"). Indeed, Plaintiff spends the
first fifteen pages of an entirely sloppy, misleading and
unresponsive brief*fn4 trying to get out from the
Settlement, only then to opportunistically invoke that same 1998
agreement in a vain effort to salvage jurisdiction. In any event,
it is abundantly clear that there is no subject matter
jurisdiction; accordingly, the case is dismissed.*fn5
II. Plaintiff's Cross-Motion Is Denied
Plaintiff moves for jurisdictional discovery, preservation of
evidence, depositions de bene esse and limited production
of documents. These requests are, in addition to being without basis in the law, mooted by the lack of
subject matter jurisdiction. They are denied.
III. The Motion To Impose Sanctions Is Granted
On February 10, 2005, Defendant, in a detailed and lengthy
memorandum, moved, pursuant to Fed.R.Civ.P. 11 (b) and
28 U.S.C. § 1927, to impose sanctions on Plaintiff and its principal
counsel and co-Plaintiff, Edward D. Fagan. Remarkably, as of the
date of this writing, over six months after the sanctions motion
was filed, Mr. Fagan has not responded.
A. Standard For Sanctions Under Rule 11 and 28 U.S.C. § 1927
Rule 11, which is designed to deter baseless filings and curb
abusive litigation, imposes an affirmative duty to conduct a
reasonable inquiry into the factual and legal viability of
claims. Eastway Constr. Corp. v. City of New York,
762 F.2d 243, 253 (2d Cir. 1985). It requires an attorney to sign every
pleading or other paper filed with the court. The signature
"certifies to the court that the signer has read the document,
has conducted a reasonable inquiry into the facts and the law and
is satisfied that the document is well grounded in both, and is
acting without any improper motive." Business Guides, Inc. v.
Chromatic Communications Enters., 498 U.S. 533, 542 (1991). Rule 11 is intended to ensure that an attorney will "stop, think
and investigate" before filing "baseless papers." Cooter & Gell
v. Hartmax Corp., 496 U.S. 384, 398 (1990).
Under Rule 11, sanctions may be imposed on a person who signs a
pleading, motion, or other paper for an improper purpose such as
to delay or needlessly increase the cost of litigation, or does
so without a belief, formed after reasonable inquiry, that the
position espoused is factually supportable and is warranted by
existing law or a nonfrivolous argument for the extension,
modification, or reversal of existing law. See Caisse
Nationale de Credit Agricole-CNCA, New York Branch v. Valcorp.,
28 F.3d 259, 264 (2d Cir. 1994).
When a district court determines that Rule 11(b) has been
violated, it may impose sanctions. Fed.R.Civ.P. 11 (c). Both
monetary and non-monetary sanctions are permitted. Fed.R. Civ.
P. 11 (c) (2). In fashioning a sanctions order, the Advisory
Committee notes suggest the following considerations: (1) whether
the improper conduct was willful or negligent; (2) whether it was
part of a pattern of activity, or an isolated event; (3) whether
it infected the entire pleading, or only one particular count or
defense; (4) whether the person has engaged in similar conduct in
other litigation; (5) whether it was intended to injure; (6) what effect it had on the litigation process in
either time or expense; (7) whether the responsible person is
trained in law; (8) what amount, given the financial resources of
the responsible person, is needed to deter that person from
repetition in the same case; and (9) what amount is needed to
deter similar activity by other litigants. See Rule 11(c)
Advisory Comm. Notes (1993).
Separate from Rule 11, a district court has the inherent
authority to sanction parties appearing before it for acting in
bad faith, vexatiously, wantonly, or for oppressive reasons.
See Sassower v. Abrams, 833 F.Supp. 253, 272 (S.D.N.Y. 1993).
The Court's inherent power to sanction stems from the very nature
of the courts and their need to be able to manage their own
affairs so as to achieve the orderly and expeditious disposition
of cases. Id.
Additionally, 28 U.S.C. § 1927 provides that an 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." 28 U.S.C. § 1927. "To impose
sanctions under either authority, a court must find clear
evidence that (1) the offending party's claims were entirely
without color, and (2) the claims were brought in bad faith-that is, `motivated
by improper purposes such as harassment or delay.'" Eisemann v.
Greene, M.D., 204 F.3d 393, 396 (2d Cir. 2000). There must be a
showing of subjective bad faith on the part of the offending
attorney. Ted Lapidus, S.A. v. Vann, 112 F.3d 91, 96 (2d Cir.
1997). However, bad faith "can be inferred 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." Vacco v. Operation Rescue Nat'l,
80 F.3d 64, 72 (2d Cir. 1996) (internal quotation marks omitted).
B. Edward D. Fagan's Conduct In This Litigation Clearly
Mr. Fagan's actions in this case go far beyond (but certainly
include) a lack of preparation and lack of professionalism. In
addition to glaringly inadequate filings, utter disregard for the
court, its schedule, and the rules of procedure, it is obvious
that Mr. Fagan has misrepresented critical facts.*fn6 In ¶ 271 of the Amended Complaint, Mr. Fagan asserts that the
word "ARTWORK"*fn7 does not appear in the Settlement
Agreement and Release because "the 1998 Claims related
EXCLUSIVELY to bank accounts, monies or assets . . ." Id. ¶
275. This is totally false. The Settlement Agreement and Release
defines "Released Claims" to include, inter alia, claims for
"Looted and/or Aryanized Assets," (Settlement Agreement ¶ 1(B)),
which specifically include "any and all personal . . . property,
including . . . silver, gold, jewelry . . . [and]
art masterpieces." Class Action Compl. ¶ 17.*fn8
In the instant case, Mr. Fagan also asserts that an alleged
scheme to defraud occurring from "the 1950s to the present" falls
outside the scope of the Settlement. Am. Compl. at 23 n. 3.
Again, Mr. Fagan's claim is belied by the Settlement, which
states that "actions, conducts, or omissions on or subsequent to
January 1, 1947 that result from, arise out of or relate to the actions, conduct, or
omissions of the Releasees prior to January 1, 1947" are
explicitly covered by the Agreement. Settlement Agreement
¶ 7. Moreover, according to that same agreement, the parties
specifically agreed that Bank Austria would be released from all
claims "from the beginning of time to the date of this Agreement"
relating to Holocaust-era conduct and the claims in the
Consolidated Class Action Complaint, including those related to
"looted and/or Aryanized Assets," which include "art
masterpieces." In light of that release, it is, quite frankly,
incomprehensible that Mr. Fagan would initiate the instant
Mr. Fagan's deceptions are not limited to the above. Despite
his representation that AHVRAM, the purported entity of which he
claims to be a member and brings this suit on behalf of, "was
formed," Am. Compl. at 1 n. 1, there is, according to the
Defendant, no record of such an entity being formed in New York
State as of the filing of the Amended Complaint.*fn9 See
Memorandum In Support of Defendant Bank Austria Creditanstalt
AG's Motion To Impose Sanctions, dated February 10, 2005, at
19-20. To that end, Mr. Fagan appears to be seeking damages on behalf of a fictitious entity.
Perhaps most seriously, however, Mr. Fagan is proceeding in
direct violation of New York's Champerty Statute and Applicable
Disciplinary Rules. Champerty is defined as "maintaining a suit
in return for financial interest in the outcome." In re Primus,
436 U.S. 412, 425 n. 15 (1978). Section 488 of the New York
Judiciary Law provides, in pertinent part, that:
An attorney or counselor shall not:
1. Directly or indirectly, buy, take an assignment of
or be in any manner interested in buying or taking an
assignment of a bond, promissory note, bill of
exchange, book debt, or other thing in action, with
the intent and for the purpose bringing an action
thereon . . .
3. An attorney or counselor who violates the
provisions of this section is guilty of a
N.Y. Jud. Law § 488 (McKinney 1983). Thus, under New York law,
attorneys are prohibited from purchasing an interest in an action
where the primary purpose is "to enable the attorney to commence
a suit thereon." Sprung v. Jaffe, 3 N.Y. 2d 539, 540 (1957).
In addition, New York Disciplinary Rule 5-103 states in
pertinent part that:
A lawyer shall not acquire a proprietary interest in
the cause of action or subject matter of litigation he or she is conducting for a
client, except that the lawyer may: 1. Acquire a lien
granted by law to secure the lawyer's fee or
expenses. 2. Except as provided in DR 2-106 [1200.11]
(C) (2) or, 3. Contract with a client for a
reasonable contingent fee in a civil case.
In the Amended Complaint, Mr. Fagan claims to possess
"interests in certain of The Stolen Artwork and/or Collections,
including but not limited to portions of the Hatvany Collections"
by virtue of "Plaintiffs Deutsch who sold and/or transferred to
Fagan portions of interests acquired from Hatvany's Heirs in
1973." Am. Compl. ¶¶ 27-28. Accepting Mr. Fagan's allegations as
true, it is clear that he acquired these "claims" for the sole
purpose of bringing this action. Moreover, by acquiring this
proprietary interest in the litigation, Fagan has, at the very
least, run afoul of the disciplinary rules.
In light of the preceding, and in accordance with Rule 11,
28 U.S.C. § 1927 and the factors set forth in the Advisory Committee
Notes, the Court finds that: (1) Mr. Fagan's claims in this
matter are entirely without color; and (2) the claims were
brought in bad faith. See Eisemann, 204 F.3d at 396. Though
independently each of the following would be sufficient to find
bad faith, certainly when aggregated, Mr. Fagan's scattershot pleadings, his disregard for the court and its rules, his
flagrant misrepresentations in the Amended Complaint, his
circumvention of the Bank Austria Settlement, and his attempt to
profit by buying into the litigation constitute subjective bad
faith. Id.; Ted Lapidus, S.A., 112 F.3d at 96. Such a finding
is only bolstered by the fact that this case appears to be part
of a pervasive and disturbing trend.*fn10 Additionally, as a
graduate of Cardozo Law School with 25 years in practice, Mr.
Fagan's conduct is simply inexcusable. Accordingly, pursuant to
Rule 11, this Court's inherent power, and 28 U.S.C. § 1927,
Edward D. Fagan is hereby formally sanctioned.
In accordance with the formal sanctions, the Court also orders
1. Mr. Fagan is to pay all of to Bank Austria's
reasonable litigation costs and fees in connection
with this action;*fn11
2. Mr. Fagan is fined $5,000.00, which is due
immediately, and should be remitted to the Clerk of
the Court, United States District Court, Southern District of New York, 500 Pearl
Street, New York, NY 10007.*fn12 SO ORDERED.