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Arrowhead Capital Finance, Ltd. v. Seven Arts Entertainment, Inc.

United States District Court, S.D. New York

May 2, 2017



          KATHERINE POLK FAILLA, District Judge


         In an 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.

         In a 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)).[1]

         Mr. 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. #162, 162-1).

         On 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).[2]


         A. Applicable Law

         The 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).

         Mr. 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.”).

         B. The Court's Reconsideration of Sanctions Against Mr. Markovich

         1. Counsel's Statements Concerning SAE's CEO and CFO

         In his 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).

         These 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 ...

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