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Yimby, Inc v. Fedak

United States District Court, S.D. New York

June 22, 2017

YIMBY, INC., Plaintiff,

          OPINION & ORDER

          HONORABLE PAUL A. CROTTY, United States District Judge.

         Nikolai Fedak and New York Yimby LLC (together, "Movants") seek civil contempt sanctions against Yimby, Inc. ("Yimby") and its CEO, Daniel George. They argue that Yimby and George should be sanctioned for failure to comply with this Court's orders requiring production of certain original documents and payment of $30, 000. Yimby opposes Movants' request; and also seeks a stay pending appeal of the Court's prior orders.

         The Court holds Yimby and George in civil contempt. They must pay Movants' reasonable attorney's fees and costs incurred in pursuing this contempt order. Further, the Court denies Yimby's request for a stay pending appeal, BACKGROUND

         Yimby commenced this action against Movants for monetary damages and injunctive relief in connection with property Movants allegedly wrongfully took. On Friday, February 10, 2017, Yimby moved for a temporary restraining order ("TRO"). Dkt. 22, The Court heard argument that day and granted the TRO. Dkt. 22; Dkt. 44. Yimby never posted the required $250, 000 bond, and the TRO never became effective.

         On Wednesday, February 15, 2017, Yimby's counsel notified the Court that it could no longer rely on material evidence submitted in support of Yimby's TRO motion. Dkt. 31-2. Yimby's counsel also advised that Yimby "consented to allow [counsel] to seek dismissal of this matter in its entirety." Id. The Court held a conference that same day.

         At the conference, it became apparent that an employment agreement purporting to bear Fedak's signature ("Employment Agreement") was a forgery. This Employment Agreement, attached to the operative complaint and submitted in support of the TRO motion, was of central importance to the Court's decision to grant the TRO. Plaintiffs counsel even described the Employment Agreement as a "linchpin" to the case itself. See Feb. 15, 2017 Tr. 8, Dkt. 42. It was clear that George's declaration in support of the TRO motion was false. The Court vacated the TRO, explained that it would dismiss the action pursuant to Fed.R.Civ.P. 41(a)(2), and requested that Movants' counsel, Steven M. Wagner, bring the forged and false documents to the attention of the United States Attorney's Office for the Southern District of New York. Id. 4, 6-7. The Court further stated "I'm going to impose sanctions in the amount of $30, 000" (the amount sought by Movants for legal fees incurred), which "George will have to pay." See Id. 11, 13.

         Wagner requested that the Court order Yimby to produce the original Employment Agreement, as well as the originals of any shareholder's agreement purportedly signed by Fedak ("Shareholder's Agreement") or promissory note purportedly signed by Fedak ("Promissory Note") in order to have them examined by a certified document examiner. See Id. 7-9. According to Wagner, if the originals were produced within approximately 30 days, a document examiner might be able to determine if the signatures were new. See Id. at 3.

         On February 16, 2017, the Court entered an order ("February 16 Order") dismissing the action pursuant to Fed.R.Civ.P. 41(a)(2); directing "that by February 24, 2017, [Yimby] pay [Movants] $30, 000 for [Movants'] attorney's fees, time and expenses" ("Payment Order"); and ordering that by close of business on February 17, 2017, Yimby turn over to Movants the original Employment Agreement and any original version of the Shareholder's Agreement or Promissory Note purportedly signed by Fedak ("Turnover Order"). Dkt. 31.

         On February 21, 2017, Wagner reported that Yimby had indicated its intention not to pay the $30, 000, or to produce the originals of the Employment Agreement, Shareholder's Agreement, or Promissory Note, as the Court had directed. See Dkt. 32. George had sent Wagner a letter on February 17, 2017, attaching a copy of the Employment Agreement, and noting that it was a "facsimile." Id. at 4. George stated that as far as he knew, "no original exists." Id. Also attached to George's letter was an unsigned Shareholder's Agreement, and a "facsimile" of a Promissory Note signed by George. Id.

         The Court held a conference on February 22, 2017. Wagner requested that the Court consider contempt proceedings against George for failure to comply with the February 16 Order, and also that the Court amend its February 16 Order "to have dismissal be with prejudice." See Feb. 22, 2017 Tr. 4-5, Dkt. 46. The Court asked George about the location of the original, and George stated that he was "not in possession of an original." Tr. 5. He also said that his and "the company's process for document management is to scan the documents and store them digitally;" originals "are generally recycled [(i.e., destroyed)] after they have been scanned." Id. The Court scheduled a contempt hearing and permitted Wagner to depose George to inquire as to the originals, "in addition to everything else that you may want." Id. 4, 12.

         On February 23, 2017, the Court entered an order ("February 23 Order") "that the February 16, 2017 dismissal of this action pursuant to Fed.R.Civ.P. 41(a)(2) is with prejudice" and also "that [Yimby] produce Daniel George for a deposition by [Movants] forthwith." Dkt. 33. On March 1, 2017, Yimby moved the Court to reconsider its order dismissing the action with prejudice, and requested an additional 90 days to pay Movants the $30, 000 required by the Payment Order. Dkt 35. Movants opposed Yimby's motion on March 2, 2017, and the Court heard argument on Yimby's motion on March 3, 2017. Dkt. 36.

         In addition to discussing Yimby's then-pending reconsideration motion, the Court also heard from the parties on the issue of contempt. Despite the Court's February 16 Order, Yimby had only made one $5, 000 payment to Movants, on March 2, 2017. Mar. 3, 2017 Tr. 2, 30, Dkt. 49. Further, neither Yimby nor George had produced any originals of the Employment Agreement, Shareholder's Agreement, or Promissory Note. Id. 2. At George's deposition on March 2, 2017, George invoked his Fifth Amendment privilege in response to questions relating to the Employment Agreement. Id. Yimby's counsel explained the basis for George's assertion of his Fifth Amendment privilege: "Mr. George has been referred to the U.S. Attorney's office and is already in criminal contempt of this court and therefore under the Fifth Amendment he really should not be testifying with respect to anything related to the employment agreement or what he does with original documents." Id. 30-31.

         Since Yimby had not complied with the Court's February 16 Order, Movants stated that they intended to seek contempt sanctions including, among other things, cancellation of Yimby's trademark registration, which Movants contend was improperly obtained. See Id. at 4, 36-38. The Court responded, "it's clear to me that Mr. George has not complied with the Court's order and sanctions are appropriate. You want to tell me what you want, I'll consider it." Id. 39.

         On March 6, 2017, the Court denied Yimby's motion for reconsideration and its request for an extension of time ("March 6 Order"). Dkt. 39.

         On March 8, 2017, Movants submitted the transcript of George's March 2 deposition and detailed the sanctions they sought against both Yimby and George in light of the failure to produce the original documents and pay only $5, 000 of the $30, 000 in attorney's fees. Mar. 8 Letter, Dkt. 48; George Dep. Tr., Dkt. 48-1. Specifically, Movants requested: (1) reimbursement for additional legal fees incurred since the February 16 Order; (2) an order that Yimby and George provide access to the computer that the Employment Agreement and Promissory Note were originally scanned to before being recycled; (3) an order that George produce certain documents, including financial records, that Movants requested pursuant to the Notice of Deposition issued to George; (4) an order that Yimby and George provide Movants access to certain electronic services and data, and related requests; (5) an order cancelling Yimby's "YIMBY" trademark, and related requests; and (6) an order cancelling certain copyright ...

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