United States District Court, S.D. New York
KATHERINE POLK FAILLA, District Judge
Opinion and Order issued on September 16, 2016 (the
“September 16 Opinion”), this Court resolved the
parties' cross-motions for summary judgment by granting
in part and denying in part Plaintiff's motion and
denying in full Defendants' motion; the Court also
imposed sanctions on both Defendants and their counsel,
Raymond J. Markovich, Esq., for bad-faith conduct during this
litigation, including obstructive and vexatious conduct
during discovery. (Dkt. #143). See Arrowhead Capital
Fin., Ltd. v. Seven Arts Entm't, Inc., No. 14 Civ.
6512 (KPF), 2016 WL 4991623, at *18-24 (S.D.N.Y. Sept. 16,
2016). Of significance to the instant Order, the Court found
that a modest sanction - a percentage of the costs incurred
by Plaintiff in filing its reply brief in further support of
its motion for summary judgment - should be imposed on
defense counsel because he had acted in bad faith in (i)
representing to the Court that the CEO and CFO of Defendant
Seven Arts Entertainment, Inc. (“SAE”)
“lacked any information or knowledge related to the
subject matter of this dispute” (Dkt. #143 at 52
(citing Dkt. #56)), and (ii) raising specious evidentiary
objections to virtually every paragraph in Plaintiff's
Local Rule 56.1 statement (id.). Arrowhead
Capital Fin., 2016 WL 4991623, at *23.
letter filed on September 20, 2016, Mr. Markovich raised
several issues that he believed the Court had overlooked in
imposing sanctions on him personally. (Dkt. #144).
See Local Rule 6.3 (addressing motions for
reconsideration or reargument). See generally Ruiz v.
Citibank, N.A., No. 10 Civ. 5950 (KPF) (RLE), 2015 WL
4629444, at *1 (S.D.N.Y. Aug. 4, 2015) (noting that movant
seeking reconsideration under Local Rule 6.3 must
“point to controlling decisions or data that the court
overlooked - matters, in other words, that might reasonably
be expected to alter the conclusion reached by the
court” (internal quotation marks and citation
omitted)), aff'd, No. 15-3941-cv, 2017 WL
1379369 (2d Cir. Apr. 14, 2017) (summary order). The Court
had not overlooked the facts called to its attention, but
considered more broadly whether it had erred in imposing
sanctions against Mr. Markovich without giving him
appropriate notice of its intention and an opportunity to
respond. See Wilson v. Citigroup, N.A., 702 F.3d
720, 725 (2d Cir. 2012) (“An attorney whom the court
proposes to sanction must receive specific notice of the
conduct alleged to be sanctionable and the standard by which
that conduct will be assessed, and an opportunity to be heard
on that matter, and must be forewarned of the authority under
which sanctions are being considered, and given a chance to
defend himself against specific charges.” (quoting
Sakon v. Andreo, 119 F.3d 109, 114 (2d Cir. 1997)).
The Court concluded that it had provided insufficient notice
to the parties, and sought supplemental briefing.
(See Dkt. #149 (affirmation of Mr. Markovich), 154
(order permitting supplemental briefing from both sides
concerning the propriety of imposing sanctions on Mr.
Markovich); see also Dkt. #157 at 22-31 (transcript
of conference held on November 2, 2016)).
Markovich filed a five-page supplemental brief on December 2,
2016. (Dkt. #160). Previously, on October 12, 2016, he had
filed an affirmation explaining certain of his actions in
this litigation, including those underlying the Court's
proposed sanctions. (Dkt. #149). Plaintiff filed a
supplemental memorandum in opposition, along with an
affidavit from Plaintiff's counsel attaching various
exhibits, on December 12, 2016. (Dkt. #162, 162-1). In these
submissions, Plaintiff requested that the Court adhere to its
original decision to impose sanctions on Mr. Markovich. (Dkt.
February 13, 2017, Mr. Markovich moved to strike
Plaintiff's opposition and supporting documentation.
(Dkt. #180). Plaintiff opposed the motion to strike in
submissions dated March 10, 2017 (Dkt. #186, 186-1); and Mr.
Markovich filed a brief and an affirmation in reply on March
25, 2017 (Dkt. #189, 190).
Court believes that, other than the notice issue identified
above, the legal framework for the imposition of sanctions is
accurately set forth in pages 39 through 41 and 51 through 52
of the September 16 Opinion (Dkt. #143). See Arrowhead
Capital Fin., 2016 WL 4991623, at *18-19, *23. Generally
speaking, “[i]mposition of sanctions under a
court's inherent powers requires a specific finding that
an attorney acted in bad faith, ” and such sanctions
“are appropriate only if there is clear evidence that
the conduct at issue is [i] entirely without color and [ii]
motivated by improper purposes.” Wolters Kluwer
Fin. Servs., Inc. v. Scivantage, 564 F.3d 110, 114 (2d
Cir. 2009); but see United States v. Seltzer, 227
F.3d 36, 41 (2d Cir. 2000) (“[T]he inherent power of
the district court also includes the power to police the
conduct of attorneys as officers of the court, and to
sanction attorneys for conduct not inherent to client
representation, such as, violations of court orders or other
conduct which interferes with the court's power to manage
its calendar and the courtroom without a finding of bad
faith.”). Similarly, before imposing sanctions under 28
U.S.C. § 1927, a court “must find clear evidence
that [i] the offending party's claims were entirely
meritless and [ii] the party acted for improper
purposes.” Revson v. Cinque & Cinque,
P.C., 221 F.3d 71, 79 (2d Cir. 2000) (internal quotation
mark omitted) (quoting Agee v. Paramount Commc'ns
Inc., 114 F.3d 395, 398 (2d Cir. 1997)). See
generally Sorenson v. Wolfson, No. 16-1224, 2017 WL
1043073, at *3 (2d Cir. Mar. 16, 2017) (summary order)
(discussing sanctions imposed under the inherent powers
doctrine and 28 U.S.C. § 1927).
Markovich argues that the Court's authority in this
regard is circumscribed by Rule 11 of the Federal Rules of
Civil Procedure. (See, e.g., Dkt. #160 at 1-2). The
Court disagrees. While it is true that Rule 11 can itself be
a basis for the imposition of sanctions on a litigant or its
counsel, the rule does not otherwise restrict a court's
inherent power to impose sanctions. See DLC Mgmt. Corp.
v. Town of Hyde Park, 163 F.3d 124, 136 (2d Cir. 1998)
(“[T]he fact that there may be a statute or rule which
provides a mechanism for imposing sanctions of a particular
variety for a specific type of abuse does not limit a
court's inherent power to fashion sanctions, even in
situations similar or identical to those contemplated by the
statute or rule.”); see also Sorenson, 2017 WL
1043073, at *1-3. Similarly, the Court is not dependent on a
prior invocation by Plaintiff of the safe harbor provision
set forth in Rule 11(c)(2). See Fed. R. Civ. P.
11(c)(1) (“If, after notice and a reasonable
opportunity to respond, the court determines that Rule 11(b)
has been violated, the court may impose an appropriate
sanction on any attorney, law firm, or party that violated
the rule or is responsible for the violation.”).
The Court's Reconsideration of Sanctions Against Mr.
Counsel's Statements Concerning SAE's CEO and
supplemental submissions, Mr. Markovich first addressed his
representation to the Court that SAE CEO Richard Bjorklund
and CFO Rachel Boulds lacked “any information or
knowledge related to the subject matter of this
dispute.” (Dkt. #160 at 1; see also, e.g.,
Dkt. #149 at ¶ 9; Dkt. #160 at 2-4). In brief, Mr.
Markovich explained that (i) he has never met either officer
personally; (ii) he had spoken with each officer one or more
times before making his representation to the Court; (iii)
each officer had told him during those communications that he
or she had no personal knowledge of any relevant facts; (iv)
the tenure of each officer at SAE had post-dated the
transactions underlying the instant litigation; (v) he had
previously notified the Court of Defendants' intention to
request a protective order based on these officers' lack
of relevant knowledge; and (vi) he had let each officer speak
with Plaintiff's counsel to advise him of that lack of
knowledge. (Dkt. #149 at ¶ 9; Dkt. #160 at 2-4).
explanations have little traction. As the Court observed in
the September 16 Opinion (see Dkt. #143 at 52),
“[n]o attorney with knowledge of the allegations in
this case could believe this representation.”
(Id.). ArrowheadCapital Fin.,
2016 WL 4991623, at *23. While Mr. Markovich has frequently
argued that the case is limited to a December 2006
subordinated note transaction that went badly for Plaintiff,
the evidence in the case - which Plaintiff has gathered, of
necessity, from sources other than Defendants - confirms that
Plaintiff has been the victim of a multi-year shell game of
transactions among Peter Hoffman-controlled entities,
including SAE. The Court finds it inconceivable that anyone
(particular the company's counsel) could believe that the
CEO of a company would have no knowledge of the corporate
structure of that ...