The opinion of the court was delivered by: Denise Cote, District Judge
On September 14, 2006, the plaintiff trade union, Unite Here ("Unite"), filed the instant action against the defendant Cintas Corporation ("Cintas"), a company in which it owns a handful of shares and which it is trying to unionize. Unite alleged that Cintas issued a proxy statement containing material misstatements and omissions in violation of Section 14(a) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78 n(a) ("Section 14(a)"), and Rule 14(a)-9 promulgated thereunder, 17 C.F.R. § 240.14(a)-9 ("Rule 14(a)-9"). Unite's motion for a preliminary injunction against the defendant was denied for reasons explained in an Opinion of October 6.*fn1 Unite Here v. Cintas Corp., No. 06 Civ. 7061 (DLC), 2006 WL 2859279 (S.D.N.Y. Oct. 11, 2006) ("October Opinion"). The October Opinion is incorporated by reference and familiarity with it is assumed.
While Unite voluntarily dismissed this case after the denial of its motion for a preliminary injunction, Cintas moved on October 19 for sanctions against Unite and its counsel on four independent grounds: 1) this Court's inherent authority; 2) 28 U.S.C. § 1927 ("Section 1927"); 3) Section 78u-4(c) of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4(c)(1) ("Section 78u-4(c)"), in conjunction with Fed. R. Civ. P. 11 ("Rule 11") and 4) Rule 11 alone. For the following reasons, the motion for sanctions is denied.
The following facts are taken from the record in this case and the parties' submissions on the instant motion. On September 1, Cintas distributed to its shareholders a notice of its upcoming October 10 annual meeting and a proxy statement soliciting shareholder proxies on proposals to be voted upon at the meeting. Two weeks later, Unite filed this complaint, asserting that the Cintas proxy statement contained affirmative misstatements and omissions with respect to certain corporate transactions concerning its Chairman, Richard Farmer, as well as CEO and Board Member, Scott Farmer. The complaint alleged three specific misstatements and omissions on which Unite founded its single claim: (1) the misrepresentation of the ownership of one Cintas private jet and the benefits accruing to Richard and Scott Farmer from its use, (2) the failure to disclose related party transactions between Cintas and the law firm of Keating Muething & Klekamp PLL ("KMK"), and (3) the failure to disclose related party transactions between Cintas and the Kentucky Speedway.
Cintas' counsel sent plaintiff a letter on September 22, in which it maintained that Unite had "absolutely no factual or legal basis" for its claim and that the complaint was filed for the improper purpose of harassing the corporation. Cintas stated that if Unite did not withdraw its complaint, it would "vigorously pursue sanctions" under Rule 11 and the PSLRA.
The plaintiff brought a motion for a preliminary injunction based on each of the three misrepresentations and omissions identified in its complaint. At an evidentiary hearing on October 4, the motion was denied from the bench. The October Opinion issued two days later set forth this Court's findings of fact and conclusions of law.
The October Opinion observed that it appeared the plaintiff had brought this lawsuit to harass the defendant, to gain leverage in a unionization struggle, and without any genuine belief in the merits of its claims. October Opinion, at *10. With respect to the sole misrepresentation claim, which concerned the Falcon jet, the plaintiff failed to show a likelihood of proving that the proxy statement contained a misrepresentation. Id. at *8. As to the two omission claims, however, the October Opinion concluded that the KMK and Kentucky Speedway transactions appeared to be related party transactions under the securities laws, but denied preliminary relief because the plaintiff had failed to show that a disclosure regarding either transaction would have been material to Cintas shareholders. Id. at *8-9.
On October 9 -- five days after the motion for a preliminary injunction was denied at the hearing, and three days after the October Opinion was issued -- the plaintiff filed a notice of voluntarily dismissal pursuant to Fed. R. Civ. P. 41(a)(1)(i). This dismissal was ordered on October 12. Cintas filed its sanctions motion on October 19.*fn2
As already noted, Cintas moves for sanctions against Unite and its counsel on four independent grounds: 1) this Court's inherent authority; 2) Section 1927; 3) PSLRA Section 78u-4(c) in conjunction with Rule 11; and 4) Rule 11 alone. For the following reasons, the motion for sanctions fails.
A court possesses the inherent authority to authorize sanctions. Sakon v. Andreo, 119 F.3d 109, 113 (2d Cir. 1997). Based on its "inherent power to supervise and control its own proceedings," a court may sanction counsel or a litigant for "bad-faith conduct" provided they receive "an appropriate hearing." Mickle v. Morin, 297 F.3d 114, 125 (2d Cir. 2002) (citation omitted). Sanctions based on a court's inherent authority are appropriate where a party or attorney has acted "in bad faith, vexatiously, wantonly, or for oppressive reasons." Revson v. Cinque & Cinque, P.C., 221 F.3d 71, 78 (2d Cir. 2000) (citation omitted). Such an award must be based on "clear evidence and must be accompanied by a high degree of specificity in the factual findings." Mickle, 297 F.3d at 126 (citation omitted). The moving party must demonstrate that "the challenged actions are entirely without color, and [were] taken for reasons of harassment or delay or for other improper purposes . . . . A claim is colorable when it has some legal and factual support, considered in light of the reasonable beliefs of the individual making the claim." Revson, 221 F.3d at 78-79 (citation omitted).
The imposition of sanctions against Unite and its counsel under this Court's inherent authority is unwarranted. Two of Unite's three allegations identify omissions that are likely reportable transactions under the securities laws. Relief on these elements of plaintiff's claim was denied because Unite failed to demonstrate a likelihood of proving that disclosure of these transactions was material information for Cintas shareholders. It cannot be said, therefore, that these two prongs of Unite's claim were "entirely without color." Where two of the three prongs of the plaintiff's preliminary injunction motion were rejected under a materiality analysis, this Court will not conclude that Unite's claim itself was objectively unreasonable so as to warrant sanctions pursuant to ...