The opinion of the court was delivered by: Hurley, Senior District Judge
Presently before the Court are plaintiff's objections to the Report and Recommendation of Magistrate Judge Boyle, dated September 26, 2008 ("R&R"), which recommended that defendants be awarded $79,837.87 pursuant to the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4 et seq. For the reasons set forth below the objections are denied and the Court adopts the R&R in its entirety.
Plaintiff, John H. Libraire ("plaintiff"), commenced this action on March 31, 2006, asserting causes of action for securities fraud, pursuant to Section 10(b) of the Exchange Act of 1934, 15 U.S.C. § 78j (the "Exchange Act") and Rule 10b-5 of the Securities and Exchange Commission ("SEC"), promulgated thereunder, 17 C.F.R. §240.10b-5, as well as common law fraud and breach of fiduciary duties.
The relevant facts are set forth at length in Judge Boyle's Report and Recommendation dated January 17, 2008 (the "January Report"), familiarity with which is presumed. Briefly stated, they are as follows. In or about 1981, Myron Kaplan and Robert Krudop formed a partnership, NFP Co., and purchased 333 acres of vacant land in Riverhead to develop and use as a private hunting preserve. They then formed NFP, Inc., a New York corporation. NFP Co. conveyed 200 acres to NFP, Inc. in exchange for 75 shares in NFP Inc., as well as other consideration. NFP Co. retained the remaining 133 acres, which it leased to NFP Inc. for an amount equal to its carrying costs.
In order to fund development of the hunting preserve, NFP Inc. issued a private offering, selling 75 common shares of stock in NFP Inc. at a cost of $10,000 per share. In January 1988, plaintiff purchased a single share of common stock in NFP, Inc. for $12,5000. In November 2003, the minority shareholders of NFP, Inc., including plaintiff, commenced an action in New York Supreme Court against Kaplan, Janet Krudop, the estate of Robert Krudop, NFP, Co., and NFP, Inc. alleging waste, fraud, corporate mismanagement and breach of fiduciary duty. While that state court action was pending, plaintiff commenced the instant action alleging that defendants committed securities fraud, basing the claim on plaintiff's payment of annual dues in 2005 which he asserts was in actuality the purchase of a second, preferred security in NFP, Inc.
Defendants moved for summary judgment pursuant to Federal Rule of Civil Procedure 56 and for sanctions, arguing that the only stock issued by NFP, Inc. is its common stock and it has not issued any preferred shares. On December 4, 2007, the Court referred defendants' motion to Judge Boyle for report and recommendation.
On January 17, 2008 Judge Boyle issued the January Report recommending the defendants' motion for summary judgment be granted and the complaint be dismissed in its entirety. Judge Boyle found that it was undisputed that the only share of NFP, Inc. common stock purchased by plaintiff was in January 1988, well beyond the one year/three year statute of limitations for a claim under Section 10(b) and Rule 10b-5. He rejected plaintiff's attempt to circumvent the statute of limitations by asserting that his payment of annual dues in 2005 was the purchase of a second, preferred security in NFP, Inc. The January Report also recommends that defendants' motion for sanctions under the PSLRA be granted against both plaintiff and his counsel in an amount equal to the reasonable attorney's fees and costs incurred by defendants in defending this action. Plaintiff filed timely objections to the January Report.
By Order March 24, 2008, the Court denied the objections and adopted the January Report in its entirety, finding that (1) plaintiff failed to raise a genuine issue of material fact with regard to whether the 2005 "transaction" constitutes the purchase of a security within the meaning of the Exchange Act; (2) plaintiff did not demonstrate that discovery would create a genuine issue of material fact as to whether plaintiff purchased a security in 2005; and (3) it was appropriate for this Court to decline to exercise supplemental jurisdiction as plaintiff's federal claim is being dismissed prior to trial and the resolution of the state law claims would entail determining additional issues of fact. Further, the Court found that plaintiff's frivolous complaint warranted sanctions under the PSLRA against both plaintiff and his counsel ("counsel" or "Stein") equal to the amount of reasonable attorney's fees and costs incurred by defendants in connection with this litigation. Finally, the Court referred the issue of the amount of sanctions, i.e. the amount of reasonable attorney's fees incurred by defendants in connection with this litigation, to Judge Boyle resulting in the R&R at issue.
In his R&R, Judge Boyle began by noting that in the January Report he found that "plaintiff, through his counsel, knowingly commenced a time-barred securities fraud action" and attempted to circumvent the obvious statute of limitations issue by arguing that the payment of annual dues constituted the purchase of a security, a claim [he] found to have "absolutely no chance of success under existing precedents." . . . For these reasons [he] found that the Complaint substantially failed to comply with Rule 11(b). In addition, [he] recommended that the presumption under the PSLRA, that the sanctions awarded equal the full amount of attorney's fees and costs incurred by defendants herein, should apply to the within case on the grounds that plaintiff and Stein "failed to offer any evidence or argument whatsoever to rebut this presumption . . . ." These findings were adopted by [the Court]. . . . (R&R at 2-3 (quoting January Report at 21-22).)
Turning then to the issues at hand, Judge Boyle summarized plaintiff's and Stein's arguments as challenging the PSLRA's presumption that the full amount of attorney's fees and costs is the proper sanction on three grounds: "(1) the Complaint contained both frivolous and non-frivolous claims (i.e. the state law claims) and therefore the Complaint does not substantially fail to comply with Rule 11; (2) the hourly rates charged by defendants' counsel are not ...