The opinion of the court was delivered by: Spatt, District Judge.
MEMORANDUM OF DECISION AND ORDER
More than four years ago, on June 13, 2008, Gus Gagasoules, Jan Niblett and his company Luster Cote, Inc., and Rhonda Garner and her company Decor Specialties, Inc. (collectively "the Plaintiffs") commenced this lawsuit on behalf of themselves and a putative class against MBF Leasing, LLC ("MBF" or "the Defendant"). The complaint set forth sixteen wide-ranging causes of action based on equipment finance leases that they entered into with the Defendant. After the Court dismissed all but one of their claims, the parties spent the next two years engaged in one discovery battle after another, resulting in multiple motions, appeals, and conferences before both this Court and United States Magistrate Judge Arlene R. Lindsay. The Plaintiffs never moved to certify the class. Instead, more than two years into the case, the Plaintiffs moved to file a proposed amended complaint, asserting entirely new causes of action and adding new defendants.
Before the Court could rule on the pending motion to amend, the Plaintiffs withdrew the motion under the auspices of obtaining an expedited resolution of their individual claims. The Court found this curious, insofar as the Plaintiffs had previously represented to the Court that, if the Court denied the motion to amend, the Court would lack subject-matter jurisdiction over the case. On November 23, 2011, the Court held a hearing with respect to whether it retained jurisdiction over the action and directed the parties to submit a letter articulating their respective positions. It was at this juncture that the Plaintiffs, for the first time, argued that the Court retained jurisdiction over their individual claims despite the fact that they had never moved to certify the class. The Court has considered the parties' respective arguments, and, for the reasons set forth below, holds that it lacks subject matter jurisdiction over the Plaintiffs claims.
This holding, however, does not dispose of this case. At numerous points throughout the tortured history of this litigation, the Defendant has attempted to move for sanctions against the Plaintiffs and their counsel. Contrary to any assertion by the Plaintiffs, these motions were denied for procedural reasons-namely because the parties were attempting mediation; a motion was pending before the Court; and the Defendant had failed to comply with the Local Rules prior to filing the motion. Following the Plaintiffs' withdrawal of the motion to amend, the Defendant filed motions for orders: (1) pursuant to 28 U.S.C. § 1927 ("§ 1927") and the Court's inherent power, granting sanctions against Plaintiffs' attorneys of record, Krishnan Chittur of Chittur & Associates, P.C., Seth Lesser of Klafter, Olsen and Lesser LLP, Keith Altman of Finkelstein & Partners, and Mitchell Breit of Hanly Conroy Bierstein Sheridan Fisher & Hayes LLP (collectively referred to as "Counsel"); (2) pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ. P.") 37(b)(2)(c) and (d)(3), granting sanctions against Counsel and Plaintiffs Niblett and Luster Cote, for engaging in discovery abuses in connection with their refusal to be deposed and their failure to provide court ordered discovery; and (3) pursuant to Fed. R. Civ. P. 11, granting sanctions for the filing of a motion to amend the complaint. Not to be outdone, the Plaintiffs filed a cross-motion for an order pursuant to 28 U.S.C. § 1927 granting sanctions against the Defendant's attorney, Robert Lillientstein, Esq. of Moses & Singer, LLP ("Lillenstein").
For the reasons set forth below, the Defendant's motions for sanctions pursuant to § 1927, the Court's inherent power, Rule 11, and Rule 37(b)(2)(c) are denied and the Defendant's motion for sanctions against Niblett and Luster Cote pursuant to Rule 37(d) is granted. The Plaintiffs' cross-motion for sanctions against Lillienstein pursuant to § 1927 is also denied.
I. SUBJECT MATTER JURISDICTION
At the time the initial complaint was filed, the Plaintiffs premised this Court's jurisdiction on certain federal causes of action as well as the Class Action Fairness Act of 2005 ("CAFA"). After the Court dismissed all of the Plaintiffs' federal claims, the only basis for this Court's jurisdiction was CAFA. Without CAFA, complete diversity in this case is lacking because Plaintiff Gagasoules is a citizen of New York, as is MBF Leasing, LLC, which is a New York limited liability company whose principal office is located in New York. Moreover, the amount in controversy for all Plaintiffs is far less than $75,000.
The Defendant contends that, because the Plaintiffs never moved for class certification, the Court should dismiss the case because it lacks subject matter jurisdiction under CAFA and is without complete diversity or federal question jurisdiction. The Plaintiffs initially agreed with this position, and expressed as much in letters to the Court and in the proposed pre-trial order. However, the Plaintiffs now take the position that the Court retains jurisdiction because subject matter jurisdiction existed under CAFA at the time the complaint was filed. This issue is not clear, and the Second Circuit has not addressed whether subject matter jurisdiction survives a denial of class certification absent diversity or federal question jurisdiction.
"The circuits that have considered the issue, however, have uniformly concluded that federal jurisdiction under CAFA does not depend on class certification." Weiner v. Snapple Beverage Corp., No. 07-CV-8742, 2011 WL 196930, at * 2 (S.D.N.Y. Jan. 21, 2011) (citing Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010); United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int'l Union, AFL--CIO, CLC v. Shell Oil Co., 602 F.3d 1087, 1092 (9th Cir. 2010); Vega v. T--Mobile USA, Inc., 564 F.3d 1256, 1268 n. 12 (11th Cir. 2009)). As the court noted in Weiner, "[t]his conclusion accords with the general proposition, endorsed by the Second Circuit, that federal jurisdiction is determined at the outset of the litigation." 2011 WL 196930, at * 2 (citing LeBlanc v. Cleveland, 248 F.3d 95, 100 (2d Cir. 2001)).
However, the procedural posture of this case warrants a different conclusion. Despite being given numerous opportunities to do so, the Plaintiffs in this case never moved for class certification based on the surviving allegation in the initial complaint. Rather, the Plaintiffs represented that the potential for class certification was contingent on whether the Court granted their motion to amend the complaint. Indeed, the Plaintiffs argued to the Court that the withdrawal of the motion to amend "[did] not compromise the interests of the class" because "[t]here are several parallel class actions pending against the same Defendant and its affiliates" based on the allegations in the proposed amended complaint. (DE # 187.) Thus, the Plaintiffs not only failed to move for class certification based on the initial complaint, but have essentially conceded that the initial complaint does not state a viable class action claim.
Even those courts that have found that a denial of class certification does not divest a court of CAFA-based subject matter jurisdiction have held that, regardless of any invocation of class action status under CAFA, a federal court lacks jurisdiction if the assertion of CAFA jurisdiction was frivolous or defective from the outset. Metz v. Unizan Bank, 649 F.3d 492, 501 (6th Cir. 2011) (holding that, even though the "general rule is that if jurisdiction exists at the time an action is commenced, such jurisdiction may not be divested by subsequent events" there is an exception that "if the jurisdictional allegations are frivolous or defective from the outset, then jurisdiction never existed in the first place, regardless of the plaintiff's invocation of a class action under CAFA."); Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010) (holding that, in the context of CAFA jurisdiction, "[f]rivolous attempts to invoke federal jurisdiction fail, and compel dismissal. If a plaintiff sued in state court a seller of fish tanks on behalf of himself and 1,000 goldfish for $5,000,001 and the defendant removed the case to federal district court, that court would have to dismiss the case, as it would have been certain from the outset of the litigation that no class could be certified"); Thorogood v. Sears, Roebuck and Co., 595 F.3d 750, 752 (7th Cir. 2010) (holding that when "the claim that the suit can be maintained as a class action is frivolous" the district court would lose jurisdiction of the case under CAFA "when [the court] decertified the class.").
The only validly asserted claim in the initial complaint was the breach of contract allegation premised on the Defendant's purported action in filling in price terms in the lease agreements without authorization. The Plaintiffs never moved to certify a class on this cause of action, nor do the Plaintiffs assert that they could have certified a class on this ground. Accordingly, the Court lacks subject-matter jurisdiction over the remaining claims and dismisses them without prejudice.
Finally, although the Court is dismissing the action because it lacks subject matter jurisdiction, it still retains "the power to determine collateral issues, such as the appropriateness of sanctions." Perpetual Secs., Inc. v. Tang, 290 F.3d 132, 141 (2d Cir. 2002).
II. THE DEFENDANT'S MOTIONS FOR SANCTIONS
A. The Defendant's Motion for Sanctions Pursuant to Federal Rule of Civil Procedure 11
The Defendant moves for an order pursuant to Fed. R. Civ. P. 11 ("Rule 11") sanctioning the Plaintiffs and/or Counsel for filing a proposed amended complaint, which allegedly falsely asserted that: (1) the Defendant had charged the Plaintiffs a property tax filing fee and overcharged the Plaintiffs property taxes; (2) the Defendant's leasing agents had filled in blanks in Gagasoules' and Garner's lease agreements outside of their presence; and (3) the Defendant charged the Plaintiffs an undisclosed insurance premium. In addition, the Defendant alleges that the proposed amended complaint violated Rule 11(b) because the Plaintiffs did not have a reasonable legal or factual basis for asserting a breach of contract claim against Jay Cohen.
Rule 11(b) of the Federal Rules of Civil Procedure states that an attorney who presents "a pleading, written motion, or other paper" to the court thereby "certifies" that to the best of his knowledge, information, and belief formed after a reasonable inquiry, the filing is: (1) not presented for any improper purpose, "such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation"; (2) "warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law"; and (3) either supported by evidence or "will likely have evidentiary support after a reasonable opportunity for further investigation or discovery". Fed. R. Civ. P. 11(b). The purpose of Rule 11 "is to deter baseless filings in district court and . . . streamline the administration and procedure of the federal courts." Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990).
In general, "the standard for triggering the award of fees under Rule 11 is objective unreasonableness." Margo v. Weiss, 213 F.3d 55, 65 (2d Cir. 2000). This "standard is appropriate in circumstances where the lawyer whose submission is challenged by motion has the opportunity, afforded by the 'safe harbor' provision, to correct or withdraw the challenged submission." In re Pennie & Edmonds LLP, 323 F.3d 86, 90 (2d Cir. 2003). The Second Circuit has cautioned that Rule 11 sanctions should be "made with restraint", Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 333 (2d Cir. 1999), and, even where a court determines that Rule 11(b) has been violated, the decision whether to impose sanctions is not mandatory, but rather is a matter for the court's discretion, Perez v. Posse Comitatus, 373 F.3d 321, 325 (2d Cir. 2004).
1.As to the Allegations Regarding Property Tax Overcharges and Filing Fees
In the proposed amended complaint, the Plaintiffs sought to add additional defendants and two causes of action premised on the allegation that MBF and its associates overcharged putative class members property taxes and charged an undisclosed $25 filing fee towards property tax returns. In particular, the Plaintiffs asserted that: (1) MBF, and proposed defendants Jay Cohen and John Does 1-100, constituted an enterprise that unlawfully conspired and engaged in a pattern of racketeering activity involving mail fraud and wire fraud in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1962(c) and (d), in order "to collect property taxes from class Members at an inflated rate and remit less than the collected amount to the taxing authorities" (PAC ¶ 138); and (2) the proposed defendants were liable for breach of contract for collecting property taxes that were higher than the actual tax liability/payments owed under the leases (PAC ¶ 154).
The Defendants contend that the Plaintiffs and Counsel were in possession of information reflecting that the Plaintiffs had not been charged these fees, and therefore the representation in the proposed amended complaint to the contrary was in violation of Rule 11. Counsel argues that they never explicitly stated that the named Plaintiffs had been overcharged property taxes, and therefore their claims based on property tax overcharges were not frivolous. In reply, the Defendant points out that paragraph 17 of the proposed amended complaint, among others, stated that the Plaintiffs' claims are typical of the class. Thus, the Defendants argue:
If Plaintiffs' claims are not typical of the class, then paragraph 17 is false and they had no business filing a class action on behalf of all others 'similarly situated.' If Plaintiffs' claims are typical of the class, then the allegations regarding charges of property taxes are false. Plaintiffs cannot have it both ways. (Def.'s Rule 11 Reply Br. at 3.)
The Court agrees, in part. To the extent the RICO and breach of contract claims were premised on property tax overcharges and property tax filing fees, the Plaintiffs' claims were not typical of the class, and any assertion to the contrary was frivolous. Counsel provides the Court with no reasonable basis for their argument that the named Plaintiffs may have been overcharged property taxes. Again, Counsel cannot have it both ways. They cannot strategically avoid alleging that the named Plaintiffs were overcharged property taxes to be in technical compliance with Rule 11(b), but then argue the contrary in memoranda to the Court. Nevertheless, the RICO claims and the other claims in the complaint were not entirely based on property tax overcharges or filing fees, and therefore in that respect the Plaintiffs could validly allege that their claims were "typical" of the class.
Furthermore, the Court notes that the proposed amended complaint has been withdrawn, and the Plaintiffs are no longer attempting to assert claims based on property taxes in this litigation. Although the motion was withdrawn eight months after receiving the safe harbor letter, the parties had already expended funds briefing the motion before the safe harbor letter was received. The only additional expense incurred involved the Court's request for supplemental briefing, which only partially addressed the addition of the property tax claims. Based on the Court's review of the parties' submissions, the Court cannot say that Counsel's conduct in asserting claims premised on property tax overcharges was sanctionable under Rule 11.
2.As to the Re-Assertion of Allegations That Blanks Were Filled In After Leaving Plaintiffs' Business Premises
In the initial complaint, the Plaintiffs alleged that MBF breached the lease agreements by:
(1) collecting undisclosed taxes and an insurance premium referred to as a "Loss Damage Waiver" or "LDW"; and (2) supplying unbargained for price terms after the Plaintiffs had executed the lease agreements. Following the Court's order on the motion to dismiss, the remaining claim in this case was that the Defendant breached its contracts with the Plaintiffs by "charg[ing] for price terms that were unilaterally supplied by the Defendant after the lease agreements were executed by the Plaintiffs." (Memorandum of Decision and Order at 17, DE # 36.) The Defendant argues that the allegations in the ...