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September 1, 2005.

RBFC ONE, LLC, Plaintiff,

The opinion of the court was delivered by: DOUGLAS EATON, Magistrate Judge


I will assume that the reader is familiar with my opinion granting summary judgment. RBFC One, LLC v. Zeeks, Inc., 367 F.Supp.2d 604 (S.D.N.Y. 2005). Today's opinion will rule on Docket Item 80, Defendants' motion for a bond or equivalent security for costs, including attorneys' fees, that may be incurred by Defendants during Plaintiff's appeal.

On June 6, 2005, this motion sought a bond to cover the costs and fees for the remaining proceedings in the District Court, as well as in the Court of Appeals. However, on July 8, the movants limited this motion to the proceedings in the Court of Appeals, and reduced their requested amount from $150,000 to $100,000. (Docket Item 84, p. 2, n. 1.)

  Rule 7 of the Federal Rules of Appellate Procedure says: "In a civil case, the district court may require an appellant to file a bond or provide other security in any form and amount necessary to ensure payment of costs on appeal." The factors generally considered include (1) the appellant's financial ability to post a bond, (2) the risk that the appellant would not pay appellee's costs if the appeal loses, (3) the merits of the appeal, (4) whether the appellant has shown any bad faith or vexatious conduct. Tri-Star Pictures, Inc. v. Unger, 32 F.Supp.2d 144 (S.D.N.Y. 1999). The last factor is not crucial; in affirming Tri-Star, the Second Circuit specifically wrote, albeit in an opinion not formally published: "Whether or not appellant acted in bad faith, the district court properly concluded that the bond at issue was warranted." 1999 WL 973506, *2 (2d Cir. Oct. 6, 1999). In a published opinion, the Second Circuit had previously written:
. . . [A] district court's imposition of any sort of cost bond . . . can always be described as an implicit finding that the appellant's appeal lacks merit, or at least that the appellant poses a payment risk. A district court, familiar with the contours of of the case appealed, has the discretion to impose a bond which reflects its determination of the likely outcome of the appeal.
Adsani v. Miller, 139 F.3d 67, 79 (2d Cir. 1998).

  In the case at bar, Defendants present a strong case for a Rule 7 bond. In my judgment, the likely outcome of the appeal will be an affirmance. Moreover, the moving papers show that Plaintiff has the ability to post a bond, and poses a risk that there will be no payment to Defendants unless there is a bond. The moving papers state as follows, without contradiction. This lawsuit has been funded, and continues to be funded, by Edward Aslanian, who owns a Ferrari, a mansion in the Laurel Canyon area of the Hollywood Hills, and a home in Las Vegas. He is the general partner of an investment vehicle named Lion Limited Partnership ("Lion"). Upon the formation of Plaintiff, Lion became the owner of fifty percent of Plaintiff. Plaintiff is a limited liability company formed under the laws of the State of Nevada on July 12, 2000 solely for the purpose of producing and exploiting the Film that is the subject of this lawsuit. Lion provided all of the money (more than $4 million) to produce the Film. Plaintiff failed to repay that money, so Lion foreclosed and assumed full control of Plaintiff. Plaintiff had a limited right to exploit the Film only until February 2003. Since 2002, Plaintiff has had no income, and its sole asset is this lawsuit. Plaintiff has zero capitalization. Plaintiff still owes $32,000 to RPG, the company that handled the distribution of prints of the Film. (Docket Item 82, and its exhibits.) In short, Plaintiff is a shell corporation; Mr. Aslanian has complete power to cause Plaintiff to make payment or no payment of whichever of its debts he chooses.

  The only substantial question is whether the bond for costs should include attorneys' fees. If it does not, then the appropriate amount would be $5,000. If it does, then the appropriate amount would be Plaintiff's requested $100,000. Rule 7 uses the word "costs" and does not specifically mention attorneys' fees. The same is true of our Court's Local Civil Rule 54.2, dealing with bonds or security for costs incurred in the district court. Rule 54.2 has been construed to include attorneys' fees, both those authorized by a statute and those authorized by a private contract. Kensington Intern. Ltd. v. Republic of Congo, 2005 WL 646086, at *1 (S.D.N.Y. Mar. 21, 2005) (Preska, J.) (citing cases). But that is only a Local Civil Rule. As to Appellate Rule 7, I find that the law is accurately stated as follows by the Hon. George C. Pratt, who retired from the Second Circuit Court of Appeals in 1995 and recently updated Chapter 307 (Bonds for Costs on Appeal in Civil Cases) in Moore's Federal Practice:
The circuits are split on the question whether costs under Appellate Rule 7 include anticipated appellate attorney's fees. The District of Columbia Circuit, and district courts in the Seventh and Ninth Circuits, have held that attorney's fees are not considered costs for purposes of Appellate Rule 7. In contrast, the Second and Eleventh Circuits have held that costs under Appellate Rule 7 include anticipated appellate attorney's fees if the statute governing the underlying cause of action defines "costs" to include fees.
20 Moore's Federal Practice ¶ 307.10[2] (2005), citing cases including Adsani v. Miller, 139 F.3d 67, 71-76 (2d Cir. 1998).
  Adsani relied in part on Marek v. Chesny, 473 U.S. 1, 8-9, 105 S.Ct. 3012, 3016 (1985), which discussed Rule 68, F.R.Civ.P. and said (with my emphasis):
. . . [T]he most reasonable inference is that the term "costs" in Rule 68 was intended to refer to all costs properly awardable under the relevant substantive statute or other authority. In other words, all costs properly awardable in an action are to be considered within the scope of Rule 68 "costs." Thus, absent congressional expressions to the contrary, where the underlying statute defines "costs" to include attorney's fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.
In the case at bar, Defendants' reply brief, at pages 5-6, quotes the first two sentences. But Adsani went on to quote the next sentence, and then repeatedly emphasized that Adsani was liable for fees because of a statute, namely the Copyright Act.

  The Defendants' reply brief argues that its motion is even more compelling than the successful motion against Adsani. They note that fees are discretionary under the Copyright Act, but are mandatory under the private contractual clause in the case at bar. That argument has some equitable force, but the Defendants are unable to cite any precedent on this precise point.

  In hindsight, an additional private contractual clause would have been the best way to make the fees clause operate in an even-handed fashion. During negotiations, the Defendants could have asked Mr. Aslanian to sign a personal indemnity as to attorneys' fees. A lawsuit would be more likely if the Film project turned out to be unprofitable, and in that event it was foreseeable that Plaintiff would be judgment proof but the Defendants would not.

  At any stage in the district court, any party could have moved for a bond under Local Civil Rule 54.2. Such a motion would have probably succeeded if the movant offered to post its own bond in an equal amount. The motion under Appellate Rule 7 has been mostly unsuccessful, but the Defendants still have a remedy. They could propose a mutual posting of two bonds, each to cover future fees in the amount of, say, $95,000. If Plaintiff were to reject such a proposal, then, in my opinion, the Defendants would be entitled to elect to void the fees clause from that point on, because the clause ought not to operate in a one-sided and unconscionable manner ("heads I win, tails you lose").

  Pursuant to Appellate Rule 7, I order Plaintiff to post a bond, or equivalent security, in the amount of $5,000, no later than September 9, 2005. [Page 136, ]


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