Opinion
01-CV-89C, 01-CV-90C.
April 5, 2004
BLAIR ROACH, LLP (LARRY KERMAN, ESQ., of Counsel), Buffalo, New York, for Plaintiffs.
SULLIVAN OLIVERIO GIOIA LLP (RICHARD T. SULLIVAN, ESQ., of Counsel), Buffalo, New York for Defendants.
DONALD A. ALESSI, ESQ., Buffalo, New York for John P. Bartolomei, Esq.
INTRODUCTION
These two cases were originally brought in New York State Supreme Court, Erie County. Case 01-CV-89 is a breach of contract action. Plaintiff, a Colorado corporation, alleges that on October 11, 2000, defendant executed a security agreement in the amount of $476,000 plus interest, secured by collateral valued at approximately $500,000. Plaintiff demanded payment on January 26, 2001, which was not made. The complaint seeks possession of the collateral and money damages (Case 01-CV-89, Item 1).
According to the complaint in Case 01-CV-90, plaintiff, a New York corporation, is the owner of a computer system valued at approximately $40,000. Plaintiff allows various businesses to access and utilize the system, which is located at 2321 Kenmore Avenue in Buffalo, New York. Plaintiff alleges that on January 26, 2001, defendant, also a New York corporation, wrongfully took exclusive possession of the computer system. The complaint seeks a declaration that it is the owner of the system, and also seeks immediate delivery of the system (Case 01-CV-90, Item 1).
The cases were removed to this court on February 9, 2001 (01-CV-89, Item 1; 01-CV-90, Item 1). On February 14, 2001, the defendant filed a petition in bankruptcy court in the Western District of New York (Bankruptcy Court Docket # 01-10839B). As a result of the bankruptcy filing, all proceedings against the debtor-defendant were automatically stayed pursuant to 11 U.S.C. § 326. On September 4, 2002, the trustee in bankruptcy stipulated that the debtor would not invoke the provisions of 11 U.S.C. § 362 to prevent the plaintiffs from seeking a remand to state court and sanctions, upon the understanding that "the pursuit of remand and sanctions will not adversely [a]ffect the Debtor's estate . . ." (01-CV-89, Item 29). Additionally, in the stipulation, plaintiffs agreed not to seek any sanction from the debtor's estate. Id. On September 6, 2002, plaintiffs filed motions in both cases to remand and for sanctions, costs, and expenses, arguing that the removals were improper in the first instance (01-CV-89, Item 6; 01-CV-90, Item 6). Defendant filed a response to the motions on October 11, 2002 (01-CV-89, Item 8; 01-CV-90, Item 8). Plaintiffs filed reply affidavits in Case 01-CV-89 on November 27, 2002 (Items 11, 12), and in Case 01-CV-90 on December 2, 2002 (Item 11). Oral argument was heard on December 13, 2002. At that time, the court requested further briefing on the issue of whether this court would retain jurisdiction of a motion for sanctions if remand were ordered. The parties submitted letter briefs on January 6, 2003 (01-CV-89, Items 16, 17; 01-CV-90, Items 15, 16). Plaintiff also filed declarations on January 24, 2003, specifying damages allegedly suffered by plaintiffs as a result of defendant's removal (01-CV-89, Items 18, 19; 01-CV-90, Items 17, 18).
In a letter received by the court on February 28, 2003, defense counsel John Bartolomei requested an extension of time in which to reply to the plaintiffs' submission, and advised the court that he would be withdrawing from the case and seeking his own counsel (01-CV-89, Item 20). On March 13, 2003, attorney Donald Alessi advised the court that he would represent Mr. Bartolomei (01-CV-89, Item 22; 01-CV-90, Item 20), and on March 21, 2003, attorney Richard Sullivan took over representation of World Parts (01-CV-89, Item 23; 01-CV-90, Item 21). Mr. Alessi filed an affidavit in opposition to the motion for remand and for sanctions on April 30, 2003 (01-CV-89, Item 27; 01-CV-90, Item 25). Mr. Sullivan filed a letter reply on April 30, 2003 (01-CV-89, Item 29; 01-CV-90, Item 27).
On May 16, 2003, plaintiffs filed further declarations alleging damages suffered as a result of defendant's actions in removing the cases and in violation of a Temporary Restraining Order ("TRO") that had been issued by Justice Makowski in the state court proceeding prior to removal (01-CV-89, Items 30-32; 01-CV-90, Items 28-30). Specifically, plaintiffs contend that World Parts shipped products after the issuance of the TRO, following the removal to federal court and before the bankruptcy filing.
On May 21, 2003, Mr. Alessi filed an affidavit in response to the reply declarations (01-CV-89, Item 33; 01-CV-90, Item 31). He objected to plaintiff's inclusion of these items of damages as part of the motion for remand, as the damages were apparently caused by the alleged violation of the state court-issued TRO, not the removal of the actions to federal court. Plaintiffs objected to Mr. Alessi's affidavit, and then requested permission to file a further reply (01-CV-89, Item 35; 01-CV-90, Item 33). That reply was filed June 16, 2003 (01-CV-89, Items 36, 37; 01-CV-90, Items 34, 35). Thereafter, plaintiffs requested permission to file further material regarding damages, which permission the court granted in an order dated June 26, 2003 (01-CV-89, Item 39; 01-CV-90, Item 37). Plaintiffs filed a declaration on July 9, 2003 (01-CV-89, Item 40; 01-CV-90, Item 38), and Mr. Bartolomei filed a response on July 23, 2003 (01-CV-89, Item 41; 01-CV-90, Item 39).
Oral argument was heard on August 11, 2003. At that time, the court determined that both the trustee in bankruptcy and the attorney who represented the plaintiffs in the proceedings in Bankruptcy Court should be present at oral argument. The court also allowed further briefing by the parties. Mr. Alessi filed an affidavit with exhibits on September 2, 2003 (01-CV-89, Item 46; 01-CV-90, Item 44), and plaintiffs filed various declarations and affidavits on September 23, 2003 (01-CV-89, Items 48, 49, 50; 01-CV-90, Items 45, 46, 47). Finally, Mr. Alessi and Mr. Bartolomei filed reply affidavits on September 29, 2003 (01-CV-89, Items 51, 52; 01-CV-90, Items 48, 49). Further argument was heard on October 30, 2003. For the reasons that follow, plaintiff's motion to remand the cases is granted, and the motion for sanctions under Rule 11 and 28 U.S.C. § 1447 is denied.
DISCUSSION
I. The Motion for RemandPlaintiffs seek a remand to state court on the basis that removal of the cases to federal court was improper in the first instance. Although defendant previously argued that removal was proper, at oral argument on October 30, 2003, Mr. Alessi stated that defendant and defense counsel have no objection to the entry of an order to remand
Removal in both cases was improper. In Case 01-CV-89, defendant sought removal on the basis of diversity of citizenship. Although plaintiff is a Colorado corporation, defendant, a New York corporation, sought to remove the case to the Western District of New York (01-CV-89, Item 1). When a plaintiff files a state court civil action over which the federal district courts would have original jurisdiction based on diversity of citizenship, the defendant may remove the action to federal court, provided that no defendant is a citizen of the state in which the action was brought. See 28 U.S.C. § 1441(b); Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996); see also Circle Indus. USA, Inc. v. Parke Constr. Group, Inc., 183 F.3d 105, 108 (2d Cir.) (a defendant may remove a state court action to federal court on the basis of diversity of citizenship provided that the defendant is not a citizen of the forum state), cert. denied, 528 U.S. 1062 (1999). In Case 01-CV-90, defendant sought removal on the basis of the pending action in Case 01-CV-89 "between the same parties involving or arising out of the same transactions and the same issues . . ." (01-CV-90, Item 1). In fact, the plaintiffs in each case are different, the cases are based on different transactions and facts, and no valid ground for removal was stated in the notice of removal. Accordingly, as removal in both cases was improper, the plaintiff's motion for remand is granted.
II. Motion for Sanctions
Having determined that removal in both cases was improper, the more difficult issue is the plaintiffs' motion for sanctions. Plaintiffs seek sanctions against defense counsel only, and the costs of this motion, including attorney fees, under both Rule 11 of the Fed.R.Civ.P. and the removal statute, 28 U.S.C. § 1447. They have also filed declarations setting forth extensive damages they have suffered as a result of the defendants' alleged violation of the state court TRO. Plaintiffs seek no sanction or damages against World Parts, LLC, and have stipulated as such in the bankruptcy proceeding (01-CV-89, Item 11, Exh. A; 01-CV-90, Item 11, Exh. A). The court notes that it retains continuing jurisdiction over the motion for sanctions, despite the remand to state court. See Willy v. Coastal Corp., 503 U.S. 131, 137 (1992) (federal court may consider collateral issues such as sanctions after matter is no longer pending); see also Cooter Gell v. Hartmarx Corp., 496 U.S. 384, 395-96 (1990); Moore v. Permanente Medical Group, Inc., 981 F.2d 443, 445 (9th Cir. 1992).
In support of their motion for sanctions, plaintiffs contend that Mr. Bartolomei was aware that the notices of removal were improper. In his affidavit in support of the motion, Mr. Frank Peters, the manager of the plaintiff corporations, recounted a conversation with Mr. Bartolomei in a conference room adjacent to bankruptcy court. Mr. Peters asked Mr. Bartolomei how he could justify a frivolous removal to federal court, and Mr. Bartolomei reportedly replied that it was "all I had to work with and I needed to buy time" (01-CV-89, Item 6, ¶ 10). It should have been obvious to Mr. Bartolomei at the time of removal that such action was improper. It would appear that it was done purposely in order to avoid Justice Makowski's order. Additionally, in a letter dated February 10, 2001 from plaintiffs' attorney to Mr. Bartolomei, plaintiffs set out their position with regard to the removals, and advised him that they would seek costs and fees associated with the motions to remand (01-CV-89, Item 8, Exh. E; 01-CV-90, Item 8, Exhibit E).
Mr. Bartolomei denies that this comment was made but, if spoken, contends that the words were taken out of context (Cases 01-CV-89 and 01-CV-90, Item 8, ¶ 16).
Sanctions are proper under Fed.R.Civ.P. 11 if the court determines that an attorney has filed a pleading for an improper purpose, such as to harass or delay, or that the legal contentions therein are not warranted by existing law. Fed.R.Civ.P. 11(b), (c). However, a party seeking sanctions must serve the motion on the offending party, and then wait 21 days before the motion is filed with the court, in order to give the offending party an opportunity to withdraw the pleading. Fed.R.Civ.P. 11(c)(1)(A). Plaintiffs' counsel states that Mr. Bartolomei had ample notice that plaintiffs objected to the removal and were prepared to seek sanctions under Rule 11. However, the statute requires service of the motion according to Rule 5, not merely notice of a party's intentions. Failure to comply with the 21-day "safe harbor" provision precludes consideration of the merits of the motion and any award of sanctions under Rule 11. See Hadges v. Yonkers Racing Corp, 48 F.3d 1320, 1328 (2d Cir. 1995); Fleet Nat'l Bank v. Weightman Group, 2003 WL 21781967, *5 (S.D.N.Y. June 19, 2003) (failure to follow procedures in Rule 11 precludes sanctions); Bonondona v. Stat House, Inc., 1997 WL 43614, *3 (S.D.N.Y. February 4, 1997). Accordingly, the motion for sanctions under Rule 11 is denied.
Title 28 U.S.C. § 1447(c) provides that "[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." "The [c]ourt has discretion to award attorney's fees and costs under this section because it `is not a sanctions rule; it is a fee-shifting statute, entitling the district court to make whole the victorious party.'" Graft v. Alcoa, 2003 WL 1984347, *5 (S.D. Ind. April 4, 2003), quoting Garbie v. Daimler Chrysler Corp., 211 F.3d 407, 410 (7th Cir. 2000). Here, it is apparent that, as removal in both cases was improper, defendant should be responsible for the actual costs and attorney fees incurred by the plaintiff in bringing the motion for remand However, plaintiffs have stipulated not to seek damages against the corporate defendants, but only Mr. Bartolomei, the attorney for the defendant at the time of the wrongful removal. The court has found divided authority for the award of attorney fees and costs against an attorney under these circumstances. See Marketplace Illustrated, Inc. v. Intrex Travel, Inc., 1993 WL 405494, *3 (W.D.N.Y. September 30, 1993) (attorney not required to pay fee award under § 1447); but see State of Wisconsin v. Missionaries to the Preborn, 798 F. Supp. 542, 544 (E.D. Wisc. 1992) (joint and several liability among defendants and attorneys for costs and expenses pursuant to § 1447); Polanco v. 21 Arden Realty Corp., 121 B.R. 425 (S.D.N.Y. 1990) (attorney fees assessed against defendant and attorney under § 1447). There is no authority in the Western District or in the Second Circuit for an award of fees against an attorney under § 1447. Because the authority to award sanctions against the attorney under this statute is unclear, the motion under § 1447 is denied.
Plaintiffs did not seek sanctions under 28 U.S.C. § 1927. That section provides that an attorney "who so multiplies the proceedings in any case unreasonably and vexatiously" may be personally liable for the excess costs and expenses, including attorney fees, reasonably incurred as a result of the conduct. Such sanctions may be imposed only when there is a finding of conduct constituting bad faith. In re 60 East 80th Street Equities, Inc. v. Sapir, 218 F.3d 109 (2d Cir. 2000). While the court may impose such sanctions sua sponte, due process requires that the court provide the attorney notice and an opportunity to be heard. Ted Lapidus, S.A. v. Vann, 112 F.3d 91, 96 (2d Cir.), cert. denied, 552 U.S. 932 (1997). An attorney whom the court proposes to sanction must receive specific notice of the conduct alleged to be sanctionable, the standard by which the conduct will be assessed, the authority under which sanctions are being considered, and the attorney must be given a chance to defend himself on the specific charges. Sakon v. Andreo, 119 F.3d 109, 114 (2d Cir. 1997). An award under § 1927 is proper when the attorney's actions are so completely without merit as to require the conclusion that they must have been undertaken for some improper purpose. United States v. Int'l Bhd. of Teamsters, 948 F.2d 1338, 1345 (2d Cir. 1991). The circumstances set forth in this order provide a reason for an award of fees and costs under § 1927.
Sanctions available under § 1927 include the excess attorney fees, costs, and expenses incurred as a result of the attorney's improper conduct. See Roadway Express, Inc. v. Piper, 447 U.S. 752, 758-59 (1980); In re Spectee Group, Inc., 185 B.R. 146, 162 (Bankr. S.D.N.Y. 1995). A litigant cannot, on the other hand, rely on a sanctions motion to seek compensation for every injury that the sanctionable conduct produces. For example, a litigant cannot, in the guise of a sanctions motion, recover consequential damages. See Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 498 U.S. 533, 553-54 (1991); Elliott v. The M/V Lois B, 980 F.2d 1001, 1007 (5th Cir. 1993) ("Rule 11 sanctions should not be assessed as a substitute for tort damages."); In re Spectee Group, Inc., 185 B.R. at 163 ("Sanctions do not substitute for tort claims. . . ."); West v. West, 126 F.R.D. 82, 84 (N.D.Ga. 1989) ("Consequential damages are not authorized for a Rule 11 violation.").
Business injuries — as opposed to increased litigation costs — represent consequential damages that must be pursued in a plenary action. See, e.g., In re Spectee Group, Inc., 185 B.R. at 162-63 (additional monthly maintenance and insurance paid as a result of delay in foreclosure, and costs to re-notice foreclosure, not recoverable as sanction under § 1927); West v. West, 126 F.R.D. at 84 (Rule 11 does compensate party where the improper filing chilled the proposed sale of its business); Business Guides, Inc. v. Chromatic Communications Enterprises, Inc., 121 F.R.D. 402, 406 (N.D. Cal. 1988) (Rule 11 does not permit a party to recover excess business-related costs and lost profits as a result of commencement of case), rev'd in part on other grounds, 892 F.2d 802 (9th Cir. 1989), aff'd, 498 U.S. 533 (1991). If plaintiffs seek to recover damages they suffered as a result of the sale of collateral, they must commence an independent action sounding in tort. See In re Spectee Group, Inc., 185 B.R. at 163.
Here, plaintiffs seek reimbursement of $189,033.59 in lost collateral as a result of product allegedly shipped in violation of the state court TRO after the cases were removed to this court. This claim exceeds the permissible boundary of sanctions and extends into the province of consequential damages arising in connection with the parties' underlying business transaction. See In re Spectee Group, Inc., 185 B.R. at 162-63. Accordingly, such damages are not recoverable against Mr. Bartolomei under § 1927. Of course, this ruling does not in any way control what Justice Makowski may do under New York law relating to the alleged violation of the TRO in his court.
Plaintiff has submitted evidence that the removal of these cases to federal court was done for an improper purpose. Pursuant to 28 U.S.C. § 1927, Mr. Bartolomei may be required to personally satisfy the costs of the wrongful removal, including attorney fees, should the court determine that the removal of the cases was undertaken in bad faith.
CONCLUSION
Plaintiff's motion to remand the cases is granted. The motion for sanctions against Attorney Bartolomei under both § 1447(c) and Rule 11 is denied. Mr. Bartolomei is advised that the court is considering a sanction pursuant to 28 U.S.C. § 1927 for the wrongful removal of these cases to federal court. The parties are to appear before the court for a hearing on Thursday, May 13, 2004 at 10 a.m., at which time Mr. Bartolomei must explain why the court should not find that his conduct in removing these cases was unreasonable and in bad faith. Plaintiff's counsel will submit a statement of court costs and attorney fees for the court's review in the event that an award of costs and fees against Mr. Bartolomei is granted.
So ordered.