The opinion of the court was delivered by: Hurley, Senior District Judge
Presently before the Court is the motion of Plaintiff John H. Libaire, Jr. and his counsel, pursuant to Local Civil Rule 6.3 and Rules 59(e)*fn1 and 60 of the Federal Rules of Civil Procedure for "reconsideration and reargument" of this Court's Memorandum and Order dated May 22, 2009 (Dkt No. 51), and "for alteration and relief from the final judgment" entered in this matter.
(See Plaintiff and Counsel's Memorandum of Law in Support ("Mem. in Supp."), Dkt. No. 57 at 1.) For the reasons set forth below, the motion is granted in part and denied in part.
Plaintiff John H. Libaire Jr. "(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 promulgated thereunder, 17 C.F.R. § 240.10b-5 ("Rule 10b-5"), as well as common law fraud and breach of fiduciary duties. In his complaint, Plaintiff alleges that defendants made certain material misrepresentations which induced him to purchase securities in defendant North Fork Preserve, Inc. ("NFP, Inc."), a private, members-only hunting preserve, and on which he relied to his detriment. Specifically, Plaintiff claims that defendants Myron Kaplan ("Kaplan"), Janet Krudop ("Krudop"), NFP, Inc., and North Fork Preserve Co. ("NFP, Co.")*fn2 falsely represented that NFP, Inc. "would operate in the ordinary course of business" in order to induce Plaintiff to purchase a security in NFP. Inc. and that "purchase of that security would allow
[P]laintiff to use NFP [,Inc.] for hunting during the 2005 Long Island hunting season." According to Plaintiff, NFP, Inc. was not operated in the ordinary course of business and was inadequate as a hunting preserve in 2005, thereby rendering his purchased security worthless.
In March 2007, Defendants filed their motion for (1) summary judgment dismissing Plaintiff's complaint as time-barred; and (2) the imposition of sanctions on Plaintiff and Plaintiff's counsel pursuant to the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4 ("PSLRA"), and Rule 11 of the Federal Rules of Civil Procedure.*fn3 The motion was referred to Magistrate Judge Boyle for report and recommendation.
On January 17, 2008 Judge Boyle issued a Report and Recommendation (the "January Report") recommending that (1) the motion for summary judgment be granted and the complaint dismissed in its entirety; and (2) that the motion for sanctions 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. More specifically, Judge Boyle recommended that summary judgment be granted on the securities fraud claim as barred by the statute of limitations given that Plaintiff purchased his one share of common stock in NFP Inc. on January 12, 1988, approximately eighteen years prior to the commencement of this action. Judge Boyle rejected Plaintiff's argument that his payment in 2005 of annual dues constituted the purchase of a "security," finding that, under the evidence presented, it did not meet the economic reality test. Judge Boyle also rejected Plaintiff's contention that summary judgment should be denied because of the need for discovery, concluding that (a) Plaintiff had failed to seek discovery until December 2006, nine months after he commenced this action and only after Defendants filed their motion for summary judgment, and (b) none of the "necessary" discovery related to whether the 2005 transaction constituted the purchase of a security. Having found that Plaintiff's securities fraud claim failed, Judge Boyle recommended that the Court decline to exercise supplemental jurisdiction over the state law claims. Finally, Judge Boyle recommended that Defendants' motion for sanctions be granted as Plaintiff's frivolous complaint warrants sanctions under the PSLRA. Judge Boyle 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 Judge Boyle found to have "absolutely no chance of success under existing precedents."
Plaintiff objected to the January Report in its entirety. By Memorandum and Order dated 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 Securities Exchange Act; (2) plaintiff did not demonstrate that discovery would create a genuine issue of material fact as to whether he purchased a security in 2005; and (3) it was appropriate for the Court to decline to exercise supplemental jurisdiction. Further, the Court found Plaintiff's frivolous complaint warranted sanctions under the PSLRA against both Plaintiff and his counsel; the issues of the amount of sanctions was referred to Judge Boyle for Report and Recommendation.
Judge Boyle held a conference on April 28, 2008, at which time he established a briefing schedule for the March 24, 2008 referral. The issues were fully briefed on June 30, 2008.
On September 26, 2008, Judge Boyle issued a Report and Recommendation recommending that Defendants be awarded $79,837.87 pursuant to the PSLRA ("the September Report"). Judge Boyle summarized the arguments of Plaintiff and his counsel 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 reasonable; and (3) fees charged prior to the motion for summary judgment should not be considered recoverable." (September Report at 3.) With regard to the state law claims, Judge Boyle reasoned that because the sole basis for federal jurisdiction was the frivolous securities fraud claim, there was no good faith basis for commencing this federal action and the baseless and time-barred securities fraud claim rendered the Complaint as substantially failing to comply with Rule 11. Judge Boyle concluded that "[s]ince plaintiff and [his counsel] have failed to submit any evidence to support a claim that the Rule 11 violation was de minimis or that sanctions imposed . . . would create an unreasonable financial burden for either of them, the statutory presumption applies and defendants should be awarded the full amount of the fees requested." (Id. at 4-5.) Judge Boyle also found that the rates charged by defense counsel were reasonable. Finally, he found that the argument that defendants should not be awarded the legal fees incurred prior to the summary judgment motion was contrary to the language of the PSLRA. (Id. at 7.)
Plaintiff and his counsel filed objections to the September Report. In support of their objections, they argued that the complaint cannot be found to have substantially failed to comply with Rule 11 because "[t]he transaction in 2005 (like it predecessor in 2004) constitutes the exercise of an 'option' which is a 'security' under the Exchange Act"; the suit as a whole was not abusive and any Rule 11 violation was not substantial because of the presence of the state law claims; there was no pattern of harassment; and there was no Rule 11(b)(1) notice to plaintiff in advance of the Court's ruling." (Dkt No. 42 at 11-17.)
By Memorandum & Order dated May 22, 2009, the Court (1) denied the objections; (2) adopted Judge Boyle's September Report in its entirety, with the amount of sanction adjusted upward to reflect additional legal fees incurred by defendants from May 23, 2008 though the submission of the opposition to the objections; and (3) directed the entry of judgment.
In denying the objections, the Court began by noting that Plaintiff and his counsel sought to reargue issues determined by the January Report and the Court's adoption thereof. To the extent the objections were a request for reconsideration, the Court denied reconsideration on several grounds. First, the application was untimely. Second, as to the argument that the payment of dues is a security within the meaning of the Exchange Act in that it constitutes an "option," reargument was properly denied as (1) that argument was not raised in connection with the Defendants' motion for summary judgment nor was it made to Judge Boyle in connection with the September Report; and (2) Plaintiff proffered no authority to support this new argument. Similarly, with respect to the challenge to the determinations that the frivolity of the complaint was substantial and sanctions were warranted because of Plaintiff's and counsel's harassment of defendants and because counsel had been sanctioned in the past, reconsideration was properly denied because this was a matter fully argued in connection with the initial motion and reconsideration is not appropriate merely to rehash arguments previously considered.
The Court then turned to the remaining issues raised in the objections. The Court found that, even if the state claims were not frivolous, the complaint was noncompliant with Rule 11 because there was no good faith basis for the commencement of this federal action as the sole basis for federal jurisdiction was the frivolous securities fraud claim. The Court further found applicable the statutory presumption that the award should be the fees incurred in this action as there was no evidence that the violation was de minimis or that sanctions would create an unreasonable financial burden. The Court rejected the argument that there was an absence of due process because of a claimed lack of notice of the request for sanction, citing the fact that Defendants' notice of motion and supporting papers clearly sought sanctions pursuant to ...