The opinion of the court was delivered by: Denis R. Hurley United States District Judge
Before the Court are four motions by the various parties in this dispute. Plaintiff Zeki Kochisarli ("Plaintiff") brought the present action against Defendants Harold Tenoso ("Tenoso"), Alan Morrison Hay ("Hay"), Frances Griffin ("Griffin"), and FMB Holdings ("FMB") following his purported default on a loan agreement, seeking to have the loan declared void. Plaintiff now moves to amend the original complaint; Defendant Tenoso seeks summary judgment as to his counterclaim; Plaintiff moves to dismiss the counterclaims of Defendants FMB and Griffin (jointly, "Counter-claimants"); and Plaintiff moves for Rule 11 sanctions against Dean Browning Webb, Esq. ("Mr. Webb"), the attorney for Counter-claimants.
The following summary of facts is drawn primarily from the Court's March 29, 2005 Memorandum. The facts are undisputed unless where otherwise noted.
Plaintiff is a gold jewelry craftsman. On or about April 23, 2001, experiencing financial difficulties and facing default on a prior outstanding loan obligation, he entered into a loan agreement with Tenoso. Plaintiff executed a mortgage note with a principal sum of $350,000.00, a mortgage on a commercial property in Long Island City that he owned, and a loan settlement sheet. Pursuant to the mortgage, Plaintiff granted Tenoso a secured interest in the Long Island City property. The loan agreement provided Tenoso with an option to purchase that property in the event that Plaintiff defaulted on the loan.
According to Plaintiff, he was supposed to use a portion of the loan to prevent foreclosure on his earlier debt, and furnish the remaining funds to Defendant FMB. Defendant FMB is managed by Defendant Griffin, Tenoso's sister, who is married to Defendant Hay. With the funds furnished to it, Defendant FMB was to buy gold as a raw material for jewelry manufacture. Accordingly, the loan agreement states that "the proceeds of this loan will be furnished to FMB, L.L.C. (the 'Guarantor') in the operation of [Plaintiff]'s jewelry manufacturing business. Specifically, the proceeds are to be used to purchase gold to be used in the manufacture of jewelry." Plaintiff claims that $250,000 of the loan went directly to FMB, but that he never received any of the proceeds. Plaintiff also claims that he never made any payments on the loan, and thought that all payments in the first year of the loan would be made by FMB.
According to Plaintiff, FMB made every monthly loan payment until April 2002, when neither Plaintiff nor FMB made the required payment. As a result, Tenoso declared the loan in default, accelerated the loan payments, and notified Plaintiff that he intended to exercise his option to purchase the Long Island City property, as per the loan agreement. Plaintiff claims that Hay, Griffin and FMB were hired by Tenoso to act as his agents in selling the property.
On April 22, 2002, Plaintiff filed a voluntary bankruptcy petition in the United States Bankruptcy Court for the Eastern District of New York. On May 1, 2002, Tenoso filed a motion to be relieved from the automatic bankruptcy stay placed on Plaintiff's assets. In Tenoso's verification in support of that motion, he claimed that Plaintiff's total obligation to Tenoso was $521,136. On September 10, 2002, Tenoso filed three "proof of claim" forms with the bankruptcy court. First, Tenoso claimed that Plaintiff owed him $950,000. Then Tenoso claimed that Plaintiff owed him $480,931.75, plus late fees and attorneys fees. Finally, Tenoso claimed that Plaintiff was indebted to him for an "unknown" amount. On October 25, 2002, U.S. Bankruptcy Judge Stan Bernstein ordered the sale of Plaintiff's property; it was sold for the sum of $2,200,000.00. The Bankruptcy Court also ordered Plaintiff to pay $600,000 from the proceeds of this sale into an escrow account, to satisfy a potential future judgment in Tenoso's favor.
Plaintiff commenced the present action in New York Supreme Court, Nassau County, on June 27, 2002. He claimed, inter alia, that Tenoso loaned him money under terms that were usurious, unconscionable, and unenforceable. Tenoso filed a counterclaim demanding payment of the loan, which states that Tenoso had disbursed loan proceeds to Plaintiff, but that Plaintiff "defaulted under and breached the loan agreement." Defendants Hay, Griffin and FMB, also filed numerous counterclaims against Plaintiff, alleging various civil-RICO violations. The parties do not agree on who owes how much to whom.
Tenoso removed the action to this Court in early August, 2002, on the basis of diversity and bankruptcy jurisdiction, and on August 19, 2002, informed the Court that he intended to file a motion to dismiss the complaint, and requested a pre-motion conference pursuant to the Court's Individual Rules. On October 3, 2002, Tenoso submitted a letter motion to stay discovery pending disposition of his dismissal motion; Plaintiff responded by letter the following day, opposing the request. On November 20, 2002, U.S. Magistrate Judge Michael Orenstein set a discovery schedule as to all parties except Tenoso, whom he exempted from discovery in light of the forthcoming dismissal motion.
In April 2003, Plaintiff moved for summary judgment as to the first count of his complaint against Tenoso. Specifically, Plaintiff sought judgment as a matter of law that the loan from Tenoso was void or unenforceable because it was based upon the transfer of a deed in lieu of foreclosure and thus unconscionable, and because Tenoso's option to foreclose on Plaintiff's property in the event of default violated Plaintiff's right of redemption under New York law. In an order dated March 11, 2004, this Court held that New York law does not prohibit the transfer of a deed in lieu of foreclosure as security for a debt, but does prohibit waiver of the right of redemption. Thus, a deed executed in lieu of foreclosure must be considered a mortgage, not an absolute conveyance, such that the loan recipient retains the right to redeem the mortgaged property.
Also in April 2003, Tenoso moved for judgment on the pleadings on his counterclaim, as well as on the claims by Plaintiff, pursuant to Federal Rule of Civil Procedure ("Rule") 12(c). The motion was decided in the same March 11, 2004 order. The Court found that even when read in the light most favorable to Plaintiff, his pleadings failed to state a valid claim that the loan agreement was unconscionable or usurious. Tenoso's motion for judgment in his favor on the first count of Plaintiff's complaint was thus granted. The Court declined, however, to grant judgment on the pleadings as to Tenoso's counterclaim, in light of the parties' disputes over key issues of material fact (namely, whether the majority of the loan proceeds ever reached Plaintiff, and whether he bore responsibility for the later default).
On March 24, 2005, the Court dismissed, without prejudice, Counter-claimants' Amended Counterclaims ("ACC") because they were "indecipherable." The Court detailed precisely how Counter-claimants should endeavor to frame their Second Amended Counterclaims ("SACC"), and explicitly stated that "any further failure to abide by this Court's orders, instructions, and deadlines shall result in the dismissal of any and all of counterclaims by Hay, Griffin, and/or FMB Holdings, LLC with prejudice." (March 24 Order at 7.) Five days later, on March 29, 2005 Order, the Court issued another order, this time denying, without prejudice Defendant Tenoso's motion for summary judgment and denied, as premature, Plaintiff's request to conduct Rule 56(f) discovery.
Currently before the Court are four motions by the parties: Plaintiff moves to amend his original complaint; Tenoso moves for summary judgment on his counterclaim; Plaintiff moves to dismiss the counterclaims; and Plaintiff moves for Rule 11 Sanctions against Mr. Webb. The Court considers each of these motions in turn.
I. Plaintiff's Motion to Amend the Complaint
Plaintiff moves for leave to amend pursuant to Rule 15(a), which provides in pertinent part that leave to amend "shall be freely given when justice so requires." Fed. R. Civ. P. 15(a). A motion to amend should be denied, however, "if there is an 'apparent or declared reason --such as  undue delay,  bad faith or dilatory motive . . . ,  repeated failure to cure deficiencies by amendments previously allowed,  undue prejudice to the opposing party by virtue of the allowance of the amendment, [or (5)] futility of amendment.'" Dluhos v. Floating & Abandoned Vessel, Known as N.Y., 162 F.3d 63, 69 (2d Cir. 1998) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). Although the decision of whether to allow a party to amend his complaint is left to the sound discretion of the district court, there must be good ...