United States District Court, S.D. New York
September 23, 2005.
ABRA CONSTRUCTION CORP., Plaintiff,
LINDA GRECO, et al., Defendants.
The opinion of the court was delivered by: RONALD ELLIS, Magistrate Judge
OPINION AND ORDER
This is an action under the Federal Racketeer Influenced and
Corrupt Organization ("RICO") statute, 18 U.S.C. § 1961 et
seq., brought by plaintiff Abra Construction Corporation
("Abra") against numerous defendants. This case was referred to
the undersigned by the Honorable Barbara S. Jones on January 27,
2004, for general pretrial matters. In its complaint, Abra
alleges defendant The Merchant Bank of New York ("Merchants")
engaged in obstruction of justice, and violated 18 U.S.C. § 1512.
Complaint ¶¶ 63-72. On February 11, 2004, Merchants wrote to
Abra's counsel regarding the good faith basis for pleading a
violation of 1512(c). Letter to Abra's counsel, attached to Peter
Janovsky's Affidavit of March 31, 2004, as Exh. G. Abra did not
withdraw or amend the complaint. On April 30, 2004, Merchants
moved, pursuant to Rule 11 of the Federal Rules of Civil
Procedure, for sanctions against Abra and its attorney of record,
Robert J. Miletsky, alleging that certain claims set forth in the
complaint are frivolous. Merchants's motion is hereby DENIED.
In its complaint, Abra alleges that defendants engaged in a
scheme to defraud investment partners of profits on a project known as 112 Duane/72 Reade
Street. Complaint ¶¶ 63-72; see also Abra's Memorandum of Law
in Opposition to Merchants Bank's Motion for Sanctions ("Abra's
Mem.") at 2. Before bringing this action, Abra commenced a trust
fund diversion action under Article 3-A of the New York Lien Law
against Merchants for damages in the Supreme Court of New York.
Id. Abra alleges that Merchants fraudulently concealed its
alleged improper conduct, and engaged in obstruction of justice,
by altering and failing to produce materials in response to a
subpoena during the state court proceeding. Merchants argues that
the alleged conduct could not have violated 18 U.S.C. § 1512
because, at the time of the wrongdoing, there was no federal
action pending and the acts of obstruction only interfered with
the pending state proceeding. Merchants's Memorandum of Law in
Support of its Motion for Sanctions ("Merchants's Mem.") at 5.
The Court finds this argument unpersuasive.
Rule 11 establishes "a means by which litigants certify to the
court, by signature, that any papers filed are well-founded."
Bus. Guides, Inc. v. Chromatic Communications Enters., Inc.,
498 U.S. 533, 542 (1991). In pertinent part, Rule 11(b) provides:
By presenting to the court (whether by signing,
filing, submitting, or later advocating) a pleading,
written motion, or other paper, an attorney or
unrepresented party is certifying that to the best of
the person's knowledge, information, and belief,
formed after an inquiry reasonable under the
(1) it is not being presented for any improper
purpose, such as to harass or to cause unnecessary
delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions
therein are warranted by existing law or by a
nonfrivolous argument for the extension,
modification, or reversal of existing law or the
establishment of new law; and
(3) the allegations and other factual contentions
have evidentiary support, or if specifically so
identifies, are likely to have evidentiary support
after a reasonable opportunity for further investigation or discovery
. . .
Rule 11(b). The Court may exercise its discretion in deciding
whether or not to sanction a party. Rule 11(c). Sanctions,
however, are a drastic remedy and "must be imposed carefully,
lest they chill the creativity essential to the evolution of the
law." G-I Holdings, Inc. v. Barton & Budd, 2002 WL 1934004, at
*12 (S.D.N.Y. Aug. 21, 1002) (citation omitted). In determining
whether or not the allegations in Abra's complaint are
reasonable, an objective standard is applied. See United
States v. Int'l Bhd. of Teamsters, 948 F.2d 1338
, 1344 (2d Cir.
1991); see also Oliver v. Thompson, 803 F.2d 1265
, 1275 (2d
Cir. 1986), cert. denied, 480 U.S. 918
The Court finds that Abra's allegations are objectively
reasonable in light of the facts. Abra is "required to prove only
that . . . [Merchants] intended to interfere with a proceeding
(that happened to be a federal proceeding)." United States v.
Bell, 113 F.3d 1345, 1348 (3rd Cir. 1997), cert. denied,
522 U.S. 984 (1997). Section 1512 can be violated even if a federal
action has not been commenced and is not about to be commenced at
the time of the obstructive conduct. 18 U.S.C. § 1512(f). The
record shows Abra had an objective and reasonable basis for the
allegation in the complaint. Abra contends that Merchants's
conduct interfered with a federal "official proceeding" as
required under section 1512 namely, this RICO action. In
addition, Abra maintains that Merchants's conduct affected two
additional official proceedings as required under § 1512: an
action by the Federal Reserve related to Merchants's purported
violations of federal law by negotiating checks bearing improper
endorsements; and an investigation by federal agents of
Merchants's alleged money laundering violations. The Court finds
that sanctions are not warranted because it is not evident, from
the record, that the allegations in the complaint are patently
unreasonable, made in bad faith, or destined to fail. Finally, in its response to Merchant's motion, Abra asks the
Court to grant Rule 11 sanctions against Merchants for bringing a
frivolous Rule 11 motion. Abra's Mem. at 16. However, Abra has
not invoked the safe harbor provision of the rule. See Rule
11(c)(1)(A). Moreover, Merchants's motion is not clearly
frivolous, and in fact presented a close question. As a result,
fees are not warranted.
The Court finds that there is no basis for sanctions against
either party. Merchants's motion pursuant to Rule 11 is DENIED.
Abra's application, if considered a motion, is also DENIED.
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