The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge
In its previous Opinion and Order, dated March 11, 2005, the
Court denied Plaintiffs' motion for dismissal of the Second
Amended Complaint without prejudice pursuant to Fed.R.Civ.P.
41(a)(2). The Court also granted in part and denied in part
motions by defendants Tung and Takacs to dismiss the claims
against them. Defendant Robert Wolin ("Wolin") opposed
Plaintiffs' Rule 41(a)(2) motion and moved for sanctions against
Plaintiffs and their counsel, Coudert Brothers, LLP ("Coudert").
Prior to issuance of the Court's Order, Plaintiffs stipulated to
a dismissal of the claims against Wolin with prejudice. The Court
noted the dismissal in its Order and reserved decision on Wolin's
sanctions motion. Pac. Elec. Wire & Cable Co. v. Set Top Int'l
Inc., No. 03 Civ. 9623(JFK), 2005 WL 578916 at *1 (S.D.N.Y. Mar.
11, 2005). For the following reasons, the motion is denied.
The Court has already set out a complete statement of facts in
its previous Order. See Pac. Elec., 2005 WL 578916 at *1-4.
Familiarity with these facts is presumed. To recap, Wolin is a
partner in the Dallas office of Kirkpatrick & Lockhart Graham
Nicholson LLP ("Kirkpatrick"), which was counsel to Pacific
Electric Wire & Cable Co., Ltd. ("PEWC") when the following
events occurred. PEWC owned approximately 72.84% of the shares of Asia Pacific Wire & Cable Corp., Ltd. ("APWC")
through its subsidiaries, Kinbong Holdings Limited ("Kinbong")
and Pacific USA Holdings Corp. ("PUSA"). PUSA held 50.44% of the
shares; Kinbong held 22.4%. In September 2001, PUSA pledged its
APWC shares to Swiss Re Financial Corporation ("Swiss Re") in
exchange for a letter of credit. In October 2003, Swiss Re
assigned its rights in the shares to Set Top International Inc.
("Set Top") in exchange for $11.5 million. Around the same time,
Kinbong pledged its APWC shares directly to Set Top in exchange
for $4.1 million to be paid to Swiss Re in partial satisfaction
of a debt owed to Swiss Re by PEWC and PUSA. In summary, Set Top
acquired 72.84% of APWC for a total of $15.6 million, an amount
Plaintiffs claimed was below book value.
Tom Ching-Yun Tung ("Tung"), the purported chairman of PEWC,
consented to the Swiss Re-Set Top assignment agreement (the
"Assignment Agreement").*fn1 Plaintiffs alleged that Tung,
who was also chairman of PUSA and APWC, and a director of
Kinbong, was also a beneficial owner of Set Top, or acted in
concert with Set Top's principal shareholders. In essence,
Plaintiffs claimed that Tung engineered Set Top's inexpensive acquisition of the
PUSA- and Kinbong-pledged APWC shares.
In November 2003, Set Top announced its intention to put up for
"public sale" the PUSA-pledged APWC shares, which had been
assigned by Swiss Re to Set Top. On December 4, 2003, PEWC and
APWC, now with Coudert as counsel, filed a Complaint and moved by
Order to Show Cause for a temporary restraining order ("TRO") and
a preliminary injunction preventing the disposition of any APWC
shares in Set Top's hands.*fn2 As to Wolin, Plaintiffs
asserted fraud, RICO, fiduciary duty, conversion, negligence,
professional malpractice, and tortious interference with contract
claims. On December 8, 2003, the Court issued a TRO ex parte.
At the TRO hearing, the Court queried the Coudert attorneys with
respect to the severity of the allegations against Wolin, a
member of the Bar. Richard De Palma, Esq., responded: "Yes, sir;
they're very serious and they're not included lightly." (Tr.,
Dec. 8, 2003 Hrg. at 19). It later became apparent that at the
TRO hearing, Mr. De Palma and his Coudert colleague, Michael
Hagan, Esq., had in possession two letters between Wolin and Set
Top's counsel. This correspondence showed that Wolin was acting
in PEWC's best interests and diligently pursuing a buy-back agreement. (See Hagan Decl. in Further Supp., Exh. N). Messrs.
De Palma and Hagan failed to disclose the letters to the Court.
At the Order to Show Cause hearing on December 16, 2003, the
Court requested an explanation for the missing letters from
Messrs. De Palma and Hagan. (Tr., Dec. 16, 2003 Hrg. at 41, 44,
51-52). Both attorneys essentially apologized, claiming that the
letters were "a side issue" (Mr. De Palma) that "didn't merit the
court's attention." (Mr. Hagan). (Id. at 43, 53). In its Order
dissolving the TRO, the Court chose not to highlight the
incident. Rather, the Court remarked that "[n]othing in
plaintiff's submission proves any wrongdoing on Wolin's part."
Pac. Elec. Wire & Cable Co. v. Set Top Int'l Inc., 2003 WL
23095564 at *1 n. 5 (S.D.N.Y. Dec. 30, 2003).
On January 27, 2004, Wolin's counsel, Patterson Belknap Webb &
Tyler LLP ("Patterson"), informed Coudert that a Rule 11 motion
would be forthcoming unless Plaintiffs withdrew their Complaint.
(King Decl., Exh. 12). The next day, Coudert responded that
Plaintiffs would withdraw all claims against Wolin without
prejudice except the malpractice claim. (Id., Exh. 13). Wolin
agreed to this proposal, and the parties entered into a
stipulation. No Rule 11 motion was filed. On February 6, 2004,
Plaintiffs filed their First Amended Complaint, which reflected
the terms of the stipulation. On February 24, 2004, Wolin filed
an Answer to the Amended Complaint. Plaintiffs sought damages of $100 million on their surviving
malpractice claim against Wolin. The Second Amended Complaint,
filed on June 24, 2004, repeats the relatively few allegations
against Wolin in the First Amended Complaint. In fact, there are
only three: (i) he failed to advise Plaintiffs of the Assignment
(2d Am. Compl. ¶¶ 85, 87); (ii) he knew that a buy-back agreement
was not executed simultaneously with the Assignment Agreement,
and he failed to ensure that a buy-back agreement was executed,
thereby leaving PEWC's interests unprotected (Id. ¶ 89, 181);
and (iii) he made misrepresentations to Plaintiffs at a November
2003 meeting by denying any connection with the Assignment and
buy-back agreements. (Id. ¶ 90). Plaintiffs chose not to
re-assert an allegation in the original Complaint that Wolin had
joined with Tung and Takacs in laying the groundwork for the
Assignment by introducing Swiss Re to Set Top. (See id. ¶ 63;
Compl. ¶ 65).
While discovery crawled along in 2004, various settlements
shrank the case. On July 2, 2004, PEWC, APWC and Set Top executed
a settlement agreement, which permitted PEWC to purchase the APWC
shares from Set Top for $25 million. (De Palma Decl. in Supp.,
Exh. A, Art. 1). The parties amended other areas of the agreement
on July 15, 2004. (Id., Exh. B). On the same day, Patterson
wrote to the Court on Wolin's behalf and requested an order
compelling Plaintiffs to serve an amended complaint and extending the discovery deadline. (King Decl. Exh. 20). Quite
correctly, Wolin understood that the Set Top settlement
"change[d] the landscape of this litigation significantly" and
materially affected any claim for damages against the remaining
defendants. (Id., Exh. 20 at 2). Wolin's remaining
co-defendants, Tung and Takacs, requested a stay of discovery.
On July 19, 2004, Brian Belowich, Esq. of Coudert sent the
Court a letter in opposition to the defendants' applications.
This letter has been the subject of much ink spillage in this
litigation. Mr. Belowich informed the Court that "a final
settlement ha[d] not yet been reached between Plaintiffs and Set
Top" and that "assuming a final settlement is reached,
Plaintiffs' claims against Tung, Takacs and Wolin will not be
impacted." (King Decl. Exh. 21). Wolin, as did his co-defendants
when they were in the case, claims that this letter is misleading
at best and a "deliberate deception" at worst. (See Wolin Joint
Mem. at 21-22). Coudert defends the letter as "fully accurate and
. . . in no way misleading." (Pl. Mem. in Further Supp. at 9).
The Court ordered a final extension of discovery to October 4,
2004, but denied the other applications.
On July 20, 2004, one day after Mr. Belowich's letter, the
attorneys for Plaintiffs and Set Top executed their stipulation
of discontinuance. (De Palma Decl. in Supp., Exh. C). The Court
so-ordered the stipulation on July 26, 2004. True to their word, Plaintiffs continued to prosecute their claims
against Tung, Takacs and Wolin. On August 19, 2004, Plaintiffs
added fuel to what was already a very hot fire by filing a
grievance against Wolin with the Texas State Bar (King Decl., Exh
31). The basis of Plaintiffs' grievance was that Wolin improperly
withheld PEWC files that Plaintiffs had sought in a Request for
Production of Documents. (King Decl., Exh. 30). This problem
resulted from the power struggle described in Footnote 2,
supra, page 4. Apparently, the new PEWC chairman, Michael Lee,
terminated Wolin's representation and demanded the files. (Pl.
Mem. in Further Supp. at 32). Because of the dispute over control
of PEWC, Tung instructed Wolin not to turn over the files. (Wolin
Joint Mem. at 13). PEWC sought the documents in their First
Request for Production, (King Decl., Exh. 30, Req. #52), and
Wolin objected on the basis of privilege, among other things.
(Id., Exh. 32, Resp. #52). As far as the Court knows, the Texas
proceeding is ongoing.
On September 9, 2004, Wolin's video deposition was taken in
Dallas. (De Palma Decl. in Supp., Exh. F). On September 15, 2004,
pursuant to the settlement, PEWC regained control of the APWC
shares for $25 million. (Id. ¶ 28). On September 22, 2004,
Plaintiffs offered Wolin a full release in exchange for "a
substantial settlement payment" to PEWC. (De Palma Decl. in
Further Supp. ¶ 104). Plaintiffs alternatively offered to release Wolin without prejudice to any claims arising from issues
other than the Set Top transactions. (Id. ¶ 108). The next day,
September 23, 2004, Plaintiffs dispatched facsimiles to counsel
for the remaining defendants, including Wolin, informing them
that Plaintiffs had decided to discontinue the matter without
prejudice and that the remaining depositions in Taiwan were
canceled. (De Palma Decl. in Supp., Exh. I; King Decl., Exh. 28).
This cancellation violated a Court Order, which required consent
of the other parties or of the Court before alteration of the
deposition schedule.*fn3 On September 24, 2004, Wolin
rejected Plaintiffs' settlement offers and a proposed stipulation
of discontinuance. (De Palma Decl. in Supp., Exh. L).*fn4
Plaintiffs thereupon brought their Rule 41(a)(2) motion. Wolin
opposed the motion and cross-moved for sanctions. In a
declaration in response to Wolin's motion, Mr. De Palma of
Coudert stated that Plaintiffs would not object to a
discontinuance as to Wolin with prejudice "applicable only to the
claims made in this case relating to the Set Top transactions."
(De Palma Decl. in Further Supp. ¶ 15). At oral argument, Wolin agreed to a dismissal with prejudice on these terms. (Tr., Jan.
31, 2005 Hrg. at 32-33). ...