Opinion
20-CV-3443 (AKH) (KHP)
07-19-2023
REMI LABA, Plaintiff, v. JBO WORLDWIDE SUPPLY PTY LTD, Defendant.
THE HONORABLE ALVIN K. HELLERSTEIN, UNITED STATES DISTRICT JUDGE
REPORT & RECOMMENDATION ON MOTION FOR FEES/SANCTIONS
KATHARINE H. PARKER, UNITED STATES MAGISTRATE JUDGE
Plaintiff Remi Laba brought this action against JBO Worldwide Supply Pty Ltd (“JBO”) and Orange Butterfly Licensing International Limited (“Orange Butterfly”) on May 4, 2020, for breach of contract, quantum meruit, and unjust enrichment. Defendant JBO moves for attorneys' fees pursuant to Federal Rule of Civil Procedure 54(d)(2), Federal Rule of Civil Procedure 11, 28 U.S.C. § 1927, and the Court's inherent power. After careful review, I respectfully recommend that JBO's motion be granted, and sanctions be imposed as set forth below.
FACTUAL AND PROCEDURAL BACKGROUND
A. Factual Background
Laba is an executive and entrepreneur in the hospitality industry and the co-President of Bagatelle Group Inc., which owns an international chain of restaurants. (Compl. ¶ 6.) JBO operates and licenses the Coco Safar System of luxury coffee cafes, espresso bars, and retail emporiums that serve luxury coffee, tea, and baked goods (the “Coco Safar” brand). (Id. at ¶ 7.) The flagship Coco Safar store is based in South Africa. Laba brought this case to recover money he claimed was due to him for assisting JBO in finding a company interested in partnering with JBO to expand the Coco Safar brand to Saudi Arabia. In particular, he alleged that on March 1, 2019, he entered into a Finder's Fee Agreement with JBO pursuant to which he would find a company that would be interested in licensing or developing the Coco Safar concept in Saudi Arabia. (Id. at ¶ 8.) The initial complaint, filed on May 3, 2020, did not specify whether the agreement was signed or memorialized in writing and asserted alternative claims for unjust enrichment and quantum meruit.
There is no dispute that sometime after the alleged March 1, 2019 agreement, Laba contacted Advanced Tastes Company Limited (“Advanced Tastes”) and arranged visits between JBO and Advanced Tastes to facilitate negotiations for a potential licensing deal with JBO. (Id. at ¶¶ 9-19.) JBO ultimately entered into an agreement with Advanced Tastes to open a location in Saudi Arabia pursuant to which Advanced Tastes paid $800,000. (Id. at ¶ 20.) Laba initially invoiced JBO for $160,000 as a finder's fee, or 20% of the consideration that Advanced Tastes paid, in connection with facilitating the Advanced Taste deal. (Id. at ¶¶ 20-21.) He later lowered his fee to $100,000 after learning that only $500,000 of the payment was for licensing fees and the remainder of the amount paid by Advanced Tastes was for a build-out of a store. JBO did not pay the $100,000 to Laba.
B. JBO's First Notice Concerning Fraudulently Signed Contract
Shortly after Laba filed this suit, JBO sent a letter to the Honorable Alvin K. Hellerstein requesting a conference to try to avoid a “potentially unpleasant dispute over the bona fides of the purported signature on a March 1, 2019 contract that is the stated basis for this recently filed litigation.” (Def's Letter Request for a Conference, ECF No. 9.) On June 26, 2020, Judge Hellerstein dismissed the complaint for failure to adequately plead subject matter jurisdiction but gave leave to amend. (ECF No. 13.) On August 6, 2020, Laba filed an amended complaint. (Am. Compl., ECF No. 20.) The amended complaint contained language similar to the initial complaint, stating that “Plaintiff and Defendant JBO entered into a Finder's Fee Agreement under which JBO engaged Plaintiff. . .” to find a company that would be interested in licensing or developing the Coco Safar concept in Saudi Arabia. (Am. Compl. ¶ 14.)
On August 26, 2020, JBO renewed its request for a conference on the ground that Laba's contract claim was premised on a fraudulent contract. (Def.'s Second Letter Request for Conference, ECF No. 21.) JBO asserted that prior to filing suit, Laba had sent JBO a written finder's fee agreement (“Agreement”) purportedly signed by JBO's Chief Executive Officer (CEO), Wilhelm Liebenberg. (Id.) JBO explained that it had informed Laba's counsel that it believed the Agreement was fraudulent - that someone other than Liebenberg had affixed Liebenberg's signature to the Agreement, and that emails from April and May 2019 reflected that the contract had been rejected and Liebenberg did not have authority to sign the Agreement absent board approval. (Id.)
On September 7, 2020, Laba responded to JBO's letter. (Laba Response Letter, ECF No. 23.) Laba's counsel objected to the suggestion that Laba had affixed Liebenberg's signature to the Agreement and contended that he had a valid basis to bring suit to recover a finder's fee on behalf of Laba, regardless of whether he was able to prove Liebenberg had delivered a signed contract to Laba. Laba's counsel provided a Statement signed by Martin Bergh, a director of Orange Butterfly Holdings, the parent company of JBO, stating that Liebenberg had never denied entering into an agreement with Laba on behalf of JBO and had in fact asked Bergh to negotiate a lower finder's fee with Laba, but that Laba did not agree to accept a lower fee. (Laba Response Letter Ex. A, ECF No. 23.) Laba also attached a June 9, 2020 resignation letter from Wayne Bebb, former Chief Operating Officer and Chief Financial Officer of JBO, to board members and shareholders of JBO and other associated companies. In the letter, Bebb explained that he was obliged under South African law applicable to Chartered Accountants in that country to report certain irregularities at JBO and concerns about its CEO (that is, Liebenberg), and was resigning. Among other things, Bebb wrote that he had witnessed Liebenberg engage in unethical and fraudulent conduct and mismanagement of JBO. With respect to the instant suit filed against JBO by Laba, Bebb wrote that Liebenberg had admitted to him that a deal was in place with Laba and Laba should have been paid. (Id. Ex. B.)
On September 10, 2020, JBO submitted a reply to clarify that it was not denying that there was a business relationship between Laba and JBO and an “informal” agreement regarding a Saudi Arabia store. JBO nevertheless asked the Court to resolve the issue of whether there was a fraudulent signature on the Agreement that Laba's counsel had sent to JBO's counsel before filing suit. Because Laba had not submitted the contract at issue to the Court, JBO's counsel also attached the contract to its submission for the Court's review. (JBO Reply Letter, ECF No. 25.) On September 11, 2020, the Court held a conference after which it ordered proper service of the amended complaint and set deadlines for discovery. (See ECF No. 26.) It did not resolve the issue of the alleged fraudulent contract at that time.
C. First Sanctions Motion
On February 12, 2021, JBO filed a motion for sanctions under Rule 11 and 28 U.S.C. § 1927, arguing that Laba's claims relied on the Agreement, asserting that Laba and his counsel refused to demonstrate what due diligence was taken to authenticate Liebenberg's signature on the contract, and claiming that Laba refused to produce any evidence of when and how Liebenberg's signature appeared on the Agreement and how Laba received the agreement from JBO. (Def.'s Mot. for Sanctions, ECF No. 53.) As part of JBO's motion for sanctions, Liebenberg attested that Liebenberg refused to sign the draft agreement because it did not reflect the original proposal, which was limited to one pop-up store in Saudi Arabia. (Liebenberg Decl. ¶ 7, ECF No. 55.) In addition, Liebenberg attached emails between Laba and employees of Orange Butterfly that suggested the company had committed to pay a finder's fee to Laba. (Id. Ex. 3-4, ECF Nos. 55-3, 55-4.) In other words, JBO did not dispute that there was some arrangement with Laba to pay Laba in connection with the Advanced Tastes deal but claimed that Liebenberg had never signed a formal finder's fee agreement.
On March 16, 2021, Laba filed his opposition to the motion for sanctions. Laba argued that the authenticity of the Agreement was an issue to be decided at trial, that he and his counsel had undertaken sufficient due diligence to date, and that even if he ultimately could not rely on the signed Agreement, Laba had a valid claim for breach of an oral contract. (Pl.'s Br., ECF No. 66.) Laba included a declaration in which he attested that “[t]o memorialize the agreement, JBO sent to me the signed agreement dated as of March 1, 2019.” (Laba Decl. ¶ 5, ECF No. 65.) The declaration attached a version of the Agreement signed by both Liebenberg and Laba. Laba attested that “he was unable to locate the email sending me the executed agreement because on or about February 4, 2020, the company that hosts the server for my email deleted all prior emails sent or received.” (Id. at ¶ 7.) Laba also stated that he was “certain that discovery of the email records of Defendants will show the transmission of the executed agreement to me [and that] he was unable to produce the email in which he had received the contract because the company that hosts the server of the email had deleted the relevant email.” (Id.)
In reply, Liebenberg asserted that Laba was in contact with three individuals who were management at JBO, including Bergh, and that these actors had formed another business called Naturally Out of Africa (“NOOA”) to compete with JBO. (Liebenberg Reply Decl. ¶ 2, ECF No. 70.)
On July 1, 2021, Judge Hellerstein denied JBO's motion for sanctions on the basis that Laba's motion was premature prior to summary judgment practice or the end of discovery. (Op. Denying Mot. for Sanctions, ECF No. 80.) Judge Hellerstein also found that the issue of whether Liebenberg's signature was authentic and binding was an issue of fact not properly resolved on a motion for sanctions. (Id.)
D. Second Amended Complaint and Second Motion for Sanctions
On July 13, 2021, Laba filed a Second Amended Complaint (“SAC”) and again alleged that the parties “entered into a Finder's Fee Agreement” with no mention of signatures or whether the contract was oral or written. (SAC ¶ 14, ECF No. 84.) On July 22, 2021, JBO answered the SAC and asserted third-party claims against Bergh, Wayne Bebb, Iain Banner, and NOOA entities for tortious interference with a prospective business relationship and misappropriation of trade secrets. (ECF No. 101.) Laba and the Third-Party Defendants moved to dismiss the third-party complaint on grounds of lack of personal jurisdiction, forum non conveniens, and failure to state a claim. (ECF No. 147.) On January 26, 2022, Judge Hellerstein granted Laba's and the Third-Party Defendants' motion to dismiss based on lack of personal jurisdiction and forum non conveniens. (ECF No 183.) However, JBO filed a motion for reconsideration on the basis that JBO had received emails in discovery in which Laba and the Third-Party Defendants allegedly planned to take action to render JBO insolvent so the other shareholders of JBO and Laba could form a new company and force JBO to sell its intellectual property. (JBO's Mot. for Reconsideration, ECF No. 185.) On July 7, 2022, Judge Hellerstein granted the motion for reconsideration, saying that JBO showed “plausible allegations of a conspiracy to file multiple lawsuits to unseat its officers,” which justified jurisdiction and venue in this District. (Order Granting Reconsideration, ECF No. 193.)
On December 15, 2021, JBO again moved for sanctions against Laba pursuant to Federal Rule of Civil Procedure 37(b) for violating a discovery order. (JBO's Rule 37 Mot. for Sanctions, ECF No. 166.) As relevant here, JBO alleged that Laba failed to produce an authenticated copy of the Agreement signed by Liebenberg. (JBO's Rule 37 Mot. for Sanctions 11-12, ECF No. 166.) JBO pointed to an April 2019 email that he said disproved Laba's allegations that (1) the Agreement was authentic and (2) the company that hosts the email server had deleted emails. (Id.) As part of the Rule 37 motion for sanctions, JBO filed a Declaration from Daniel L. Regard II, a Managing Director at iDiscovery Solutions, Inc., an expert services and consulting firm, and “electronic technology specialist.” Regard compared versions of the Agreement produced by Laba in discovery and opined that they were not derived from the same document and that Liebenberg's signature was not authentic. (December 15, 2021 Regard II Decl., ECF No. 168.) The opinion was based on Liebenberg's denial that he had affixed his signature to the Agreement and unusual features of the signature block, among other digital clues.
Laba cross-moved for Rule 37 sanctions. With respect to the Agreement, he argued that the authenticity of the contract should be determined at trial. While acknowledging that he did not have access to the email sent by JBO that had attached the Agreement, he asserted he had gone through considerable efforts to find emails that exist, and that JBO had been avoiding taking Laba's deposition regarding the authenticity of the Agreement. (Pl's Opp. 9, ECF 171, 174.)
On July 7, 2022, Judge Hellerstein denied both parties' motions for sanctions finding that both parties were equally responsible for discovery abuses. (ECF Nos. 191-92.) Judge Hellerstein also ordered that discovery proceed and that JBO take Laba's deposition on the issue of the Agreement's authenticity by July 22, 2022. (Order Granting Reconsideration, ECF No. 193.)
E. Motion for Summary Judgment
On September 2, 2022, the parties cross-moved for summary judgment on Laba's claims (but not on JBO's cross-claims or third-party claims). (ECF Nos. 236, 241.) Laba's motion for summary judgment argued that JBO breached its agreement to pay Laba a $100,000 finder's fee for facilitating the Advanced Tastes deal but-importantly-relied solely on an oral agreement memorialized in signed emails. (Pl's Mot. Summ. J., ECF No. 236.) Laba explicitly disclaimed reliance on the Agreement. In a sworn declaration, Laba maintained the signed Agreement was returned to him and attached a copy of the fully executed agreement but stated that he was not pursuing claims under that contract because of his inability to produce the email or original signature. (Laba Sept. 2, 2022 Decl. 14-18, ECF No. 238.) Laba also denied attaching Liebenberg's signature to the Agreement, stating “I do not have Adobe Acrobat software or any other software on my computer that that would allow me to add Mr. Liebenberg's signature to a document. I certainly did not ask anyone else to add Mr. Liebenberg's signature to any document. The notion that I would forge a contract to obtain a finder's fee is preposterous and highly offensive.” (Id.)
For its part, JBO argued that there was no enforceable contract, that the signed
Agreement was fabricated by Laba, and that Laba was not entitled to equitable relief in the form unjust enrichment and quantum meruit. (Def's Mot. Summ. J., ECF No. 242.) JBO also filed a second declaration from its expert that included additional opinions that the two versions of the Agreement from 2020 and 2021 produced by Laba in discovery contained a fabricated Liebenberg signature and that the suspension of Laba's email domain would have no impact on Laba's historical emails. (Regard II September 2, 2022 Decl., ECF No. 247.)
In opposition to JBO's motion for summary judgment, Laba filed his own expert declaration from Daniel Lopresti, a professor of computer science, opining it was impossible to determine who added the Liebenberg signature to the Agreement and that nothing was unusual with the signature page in the document. (Lopresti Decl., ECF No. 271.) Laba also submitted another declaration re-asserting that he received the Agreement signed by Liebenberg. (ECF No. 269.)
On October 4, 2022, Judge Hellerstein denied Laba's motion for summary judgment and granted JBO's. Specifically, the Court held:
Even though Plaintiff started this case alleging a written agreement, in his motion for summary judgment, he now asserts a right to recover the finder's fee based on an oral agreement, citing a series of emails purportedly evidencing the agreement. However, the emails do not show the certain terms or conditions of the agreement, and none is subscribed to by Defendant, the party to be charged. Under New York law, a finder's fee agreement must be in writing. As explained further below, the emails are not sufficient to establish such a writing. Therefore, Plaintiff has no claim under New York law.(Order Denying Pl's Mot 2, ECF No. 297.) Judge Hellerstein also found that Laba was not entitled to equitable relief, holding that:
As to the unjust enrichment and quantum meruit claims, New York courts allow such quasi-contract claims to proceed when the writings are sufficient to establish the existence of agreement and any missing term can be implied in law or by implication from the surrounding writings... In contrast, New York courts dismiss quasi-contract claims under the Statute of Frauds where the writings relied upon fail to establish that the defendant agreed to pay a finder's fee, or where the writings leave ambiguity as to whether the agreement's terms covered the transaction upon which a fee is claimed. Here, the writings offered by Plaintiff fall into the latter category. Plaintiff's quasi contract claims for unjust enrichment and quantum meruit also are barred by the Statute of Frauds.
F. Third Motion for Attorneys' Fees and Sanctions
On October 18, 2022, JBO moved for attorneys' fees pursuant to Rule 54(d) against Laba. (ECF Nos. 302-03.) The motion argued that attorneys' fees were warranted pursuant to Rule 11, 28 U.S.C. Section 1927, and the Court's inherent power to sanction Laba, because Laba had relied on a fraudulent contract in pursuing his claims. On November 22, 2022, Judge Hellerstein referred the remaining third-party claims and counterclaims to the undersigned for general pretrial management and also referred all dispositive motions to the undersigned for a report and recommendation. (ECF No. 324.) On May 15, 2023, after a settlement conference with the undersigned, the parties settled all remaining claims (including an appeal of Judge Hellerstein's summary judgment decision and related litigation in another court) except for the dispute presented in the instant motion. (ECF No. 351.)
On June 28, 2023, the parties attended an evidentiary hearing and oral argument on the instant motion. At the hearing, JBO presented testimony from its expert, Regard, that was in line with its expert declarations previously filed with the Court. In particular, Regard again opined that Liebenberg's signature on the Agreement was not authentic - that it had been applied digitally by someone other than Liebenberg. Regard testified that he reached this conclusion through evaluation of metadata and comparison of various versions of the Agreement produced in discovery. JBO conceded at the hearing that it could not demonstrate definitively that Laba had applied Liebenberg's signature to the Agreement but claimed that Laba could easily have obtained Liebenberg's signature from previous agreements and that the technology needed to cut and paste a signature and signature block was widely and standardly available on most devices.
Neither Laba nor his counsel testified at the hearing, although both were given notice and an opportunity to do so. Instead, Laba argued the instant motion was procedurally improper and that because Laba had withdrawn reliance on the Agreement, sanctions were not proper. Laba did not offer the testimony of an expert to rebut Regard's testimony but referred back to its earlier expert submission. His counsel argued that there was no definitive proof that Laba added Liebenberg's signature to the Agreement and that neither party could authenticate the signature.
DISCUSSION
JBO asserts entitlement to attorneys' fees under Fed.R.Civ.P. 54(d)(2), Rule 11, 28 U.S.C. § 1927, and the Court's inherent power. As discussed below, sanctions are appropriate under the Court's inherent power because JBO has produced clear and convincing evidence that Laba committed fraud on the Court.
Attorneys' fees are generally not recoverable absent a statute with explicit congressional authorization or an enforceable contract allowing for attorneys' fees. F. D. Rich Co. v. U.S. for Use of Indus. Lumber Co., 417 U.S. 116, 126 (1974). Where a judgment has been entered, Rule 54(d)(2) of the Federal Rules of Civil Procedure outlines the procedure for requesting attorneys' fees and requires a “claim for attorneys' fees and related nontaxable expenses . . . be made by motion unless the substantive law requires those fees to be proved at trial as an element of damages.” A motion for attorneys' fees must “specify the judgment and the statute, rule, or other grounds entitling the movant to the award.” Fed.R.Civ.P. 54(d)(2)(B). Rule 54 does not independently provide a basis for attorneys' fees-the right to attorneys' fees must come from another statute or a contractual entitlement. See, e.g., ComLab, Corp. v. Kal Tire, 2019 WL 2144307, at *2 (S.D.N.Y. Apr. 18, 2019), report and recommendation adopted, 2019 WL 2137135 (S.D.N.Y. May 16, 2019), aff'd sub nom. ComLab, Corp. v. Tire, 815 Fed.Appx. 597 (2d Cir. 2020) (interpreting Rule 54(d)'s use of the word “claim” in Black's Law Dictionary as defining the word as “[t]he assertion of an existing right” and not an independent basis).
JBO does not raise a statutory or contractual basis for an entitlement to attorneys' fees. Thus, Rule 54 does not provide a basis for relief. Also, at the oral argument, JBO abandoned its reliance on Rule 54, stating it had cited Rule 54 simply because that Rule provides a deadline for filing a post-judgment motion for attorneys' fees.
B. Rule 11
Rule 11 can sometimes provide a basis for awarding attorneys' fees in the form of sanctions. Under Rule 11, an attorney, by signing, filing, submitting, or advocating a pleading, written motion, or other paper, certifies four aspects of the document: (1) that it is not being presented for an improper purpose; (2) the legal arguments are supported by existing law or are not frivolous; (3) the factual contentions have been investigated and are supported; and (4) denials are also likewise well-supported. Fed.R.Civ.P. 11(b)(1)-(4). Sanctions may be imposed on an attorney who violates Rule 11. Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce Factory, Ltd., 682 F.3d 170, 177 (2d Cir. 2012); Lawrence v. Richman Grp. of CT LLC, 620 F.3d 153, 158 (2d Cir. 2010). In some instances, Rule 11 sanctions also may be imposed against a represented party when the party “is responsible for the violation.” Fed.R.Civ.P. 11(c)(1); see Braun ex rel. Advanced Battery Techs., Inc. v. Zhiguo Fu, 2015 WL 4389893, at *12 (S.D.N.Y. July 10, 2015).
There are strict procedural requirements for bringing a Rule 11 motion. See Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce Factory, Ltd., 682 F.3d 170, 175 (2d Cir. 2012). For example, the Rule requires that a request for sanctions be considered separately from any other motion and not coupled with another motion, such as one under Rule 54. Fed.R.Civ.P. 11(c)(2) ; see also Sorenson v. Wolfson, 170 F.Supp.3d 622, 627 (S.D.N.Y. 2016), aff'd, 683 Fed.Appx. 33 (2d Cir. 2017) (finding Rule 54(d)(2) provides the procedure for filing an attorneys' fees claim where authorized under another statute and considering Rule 11 sanctions separately from Rule 54(d)(2)).
Given the aim of the Rule to minimize expenditure of judicial resources and encourage correction or withdrawal of defective documents, see Lawrence, 620 F.3d at 158; Perpetual Secs., Inc. v. Tang, 290 F.3d 132, 141 (2d Cir. 2002), the Rule also requires a notice and cure period. Specifically, its safe-harbor provision requires the moving party to first provide notice and a draft of the motion for sanctions to the non-moving party and 21 days to cure. Fed.R.Civ.P. 11(c)(2). It also requires service of the notice and motion in accordance with Rule 5. An informal warning letter is insufficient. Id. Only after the safe-harbor period has passed may a party file a Rule 11 motion. Additionally, “[a]lthough Rule 11 contains no explicit time limit for serving the motion, the ‘safe harbor' provision functions as a practical time limit, and motions have been disallowed as untimely when filed after a point in the litigation when the lawyer sought to be sanctioned lacked an opportunity to correct or withdraw the challenged submission.” In re Pennie & Edmonds LLP, 323 F.3d 86, 89 (2d Cir. 2003) (collecting cases).
JBO failed to demonstrate how it complied with the procedural requirements of Rule 11. The Rule 11 motion was not separately filed. Additionally, JBO did not attach proof that it served notice of the motion 21-days before filing the motion in conformance with the safe harbor provision of the Rule. (ECF No. 303.) The safe harbor requirement is strict and simply showing that the non-moving party was aware of a potential sanctions motion is insufficient. See, e.g., Star Mark Mgmt., Inc., 682 F.3d at 175 (holding that a letter without service of a motion was insufficient to trigger the 21-day safe harbor period); Rossbach v. Montefiore Med. Ctr., 2021 WL 3421569, at *5 n.8 (S.D.N.Y. Aug. 5, 2021) (finding Rule 11 sanctions may not be imposed where the moving party did not comply with Rule 11's procedural requirements).
Nor is this motion properly characterized as a renewal of JBO's first, unsuccessful Rule 11 motion. Not only was this motion not styled as a renewal of that motion, but that motion was filed in February 2021-before the filing of the Second Amended Complaint and before Laba withdrew reliance on the Agreement. (ECF No. 53). Thus, Rule 11 is not the proper vehicle for the imposition of sanctions here when it was filed after summary judgment and resolution of the claims. See Lawrence, 620 F.3d at 156-57 (finding safe harbor was not satisfied where district court's grant of a renewed Rule 11 motion was directed at an amended pleading and not the same pleading that the original Rule 11 motion was directed at so that the plaintiff did not have an opportunity to correct or withdraw). See also Cohen v. Equifax Info. Servs., LLC, 2021 WL 4393129, at *4 (S.D.N.Y. Feb. 24, 2021), report and recommendation adopted, 2021 WL 4392296 (S.D.N.Y. Sept. 24, 2021) (finding filing Rule 11 motion after summary judgment was granted or at a point in time that the non-moving party could not cure was untimely and warranted denial of the motion).
C. Section 1927 and The Court's Inherent Power to Sanction
1. Section 1927 Sanctions
28 U.S.C. § 1927 provides that “[a]ny attorney or other person admitted to conduct cases in any court of the United States . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.” Section 1927 is only applicable to attorneys or other persons authorized to practice before the courts and not against a party. Oliveri v. Thompson, 803 F.2d 1265, 1273 (2d Cir. 1986).
JBO relies on Rossbach v. Montefiore Med. Ctr. for the proposition that both a party and counsel can be sanctioned under § 1927. Its reliance is misplaced. (Pl's Br. 17); see Rossbach, 2021 WL 3421569. The portion of the case to which JBO cites states only that an attorney may be sanctioned under § 1927, and nowhere in the case does the court say that parties may be sanctioned along with attorneys. The statute and case law are clear that only counsel may be sanctioned under § 1927. Oliveri, 803 F.2d at 1273. Therefore, JBO's request to impose sanctions on Laba personally pursuant to § 1927 should be denied because the statute does not provide the relief sought.
Section 1927 sanctions are imposed only “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.” Johnson v. Univ. of Rochester Med. Ctr., 642 F.3d 121, 125 (2d Cir. 2011) (citation omitted). Prior to imposing sanctions under § 1927, a court must provide the attorney an opportunity to be heard. Id. at 126. To impose monetary sanctions under § 1927, “a court must find clear evidence that (1) the offending party's claims were entirely without color, and (2) the claims were brought in bad faith -- that is, motivated by improper purposes such as harassment or delay.” Huebner v. Midland Credit Mgmt., Inc., 897 F.3d 42, 55 (2d Cir. 2018) (citation omitted); see also Oliveri, 803 F.2d at 1273 (“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 such as delay.”). When assessing an attorney's conduct, “[t]he question is whether a reasonable attorney could have concluded that facts supporting the claim might be established, not whether such facts actually had been established.” Sierra Club v. U.S. Army Corps of Engineers, 776 F.2d 383, 390 (2d Cir. 1985). The fact that judgment was entered against the party is “a necessary, but not a sufficient, condition for a finding of a total lack of a colorable basis.” Schlaifer Nance & Co. v. Est. of Warhol, 194 F.3d 323, 337 (2d Cir. 1999). But when an attorney continues to defend a complaint even after learning of facts rendering the complaint “fatal[ly] flaw[ed],” he has engaged in bad faith conduct sanctionable under § 1927. Liebowitz v. Bandshell Artist Mgmt., 6 F.4th 267, 282-83 (2d Cir. 2021).
Here, the gravamen of Laba's claim - that he was due a finder's fee - was based on an informal arrangement reflected in emails and corroborated by statements of officers of JBO.
Counsel ultimately disclaimed reliance on the Agreement. And, because New York law allows a finder's fee agreement to be memorialized in writing that takes the form of emails, Laba's claims were not entirely without color. See Esther Creative Group, LLC v. Gabel, 901 N.Y.S.2d 906 (Sup. Ct. New York County 2009); (Op. & Order, ECF No. 297.) While counsel was ultimately unable to show that the parties had a valid finder's fee agreement under state law, it was reasonable for Laba's counsel to think that discovery would turn up emails or other writing that confirmed the existence of a finders' fee agreement. Therefore, because Laba's claim for a finder's fee under an oral contract, quantum meruit or unjust enrichment theory were no entirely without color,” sanctions under § 1927 are not appropriate against counsel.
2. The Court's Inherent Power to Sanction
The Court may impose sanctions against a party and its attorneys pursuant to its inherent power. The standard for determining whether sanctions are appropriate pursuant to the Court's inherent power is the same as the one for assessing whether sanctions are appropriate against an attorney pursuant to § 1927. Int'l Technologies Mktg., Inc. v. Verint Sys., Ltd., 991 F.3d 361, 367 (2d Cir. 2021); United States v. Prevezon Holdings, Ltd., 305 F.Supp.3d 468, 478 (S.D.N.Y. 2018). Specifically, there must be clear evidence that “(1) the offending party's claims were entirely without color, and (2) the claims were brought in bad faith -- that is, motivated by improper purposes such as harassment or delay.” Prevezon Holdings, Ltd., 305 F.Supp.3d at 479 (quoting Eismann, 204 F.3d 393, 396 (2d Cir. 2000). Therefore, courts often consider motions for sanctions pursuant to § 1927 and their inherent power together. Prevezon Holdings, Ltd., 305 F.Supp.3d at 478. Attorneys' fees can be awarded as sanctions when “the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Eisemann v. Greene, 204 F.3d 393, 395 (2d Cir. 2000) (internal quotations omitted).
A district court's inherent power to sanction also includes the power to “sanction a party ... to deter abuse of the judicial process and prevent a party from perpetrating a fraud on the court.” Yukos Cap. S.A.R.L. v. Feldman, 977 F.3d 216, 235 (2d Cir. 2020). Fraud on the court occurs when “a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate the action.” Id. (citation omitted). The court “has the power to conduct an independent investigation in order to determine whether it has been the victim of fraud.” Chambers, 501 U.S. at 44; See Rossbach, 2021 WL 3421569, at *8. That power includes the power to take testimony and reach factual conclusions. See Liebowitz, 2021 WL 3118938, at *9 (affirming a district court's sanctions order that was based on the district court's independent “review[ ] of the record and evaluat[ion of] the demeanor of the witnesses at [an] evidentiary hearing”).
A “court's inherent power must be exercised with restraint and discretion.” Int'l Technologies Mktg., Inc. v. Verint Sys., Ltd., 991 F.3d at 368 (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991)). Just as with sanctions under § 1927, before issuing sanctions under its inherent power, the court must provide the attorney or party facing sanctions with “adequate notice and opportunity to be heard.” Shepherd, 921 F.3d at 97. As noted above, this notice and opportunity was provided to Laba and his counsel.
3. Facts and Circumstances Justifying Sanctions
After an evidentiary hearing, the Court finds that there is clear and convincing evidence that Liebenberg's signature on the Agreement submitted to the Court by Laba through his counsel was fraudulent and fabricated. The Court also finds that there is clear and convincing evidence that Laba and his counsel knew that the signature was fraudulent and fabricated. The Court also finds Laba's contention that he could not locate the email that supposedly would demonstrate the authenticity of the contract is not credible. The following facts lead the Court to this conclusion:
• Laba's contention in his Declaration at ECF No. 238 that he does not have the computer knowledge to add anyone's electronic signature to any document and does not have software on his computer that would allow him to do this is not credible. JBO's expert persuasively testified that the software needed to create the Liebenberg signature and apply the signature block to a document is widely available and standard on most devices. (Hearing Tr. 32-35.) The Court is also extremely familiar with application of electronic signatures and signature blocks and knows from its own experience that no advanced computer sophistication is needed to create a fake signature block and apply it to a document.
• Laba's contention that he is “unable to locate the email sending [him] the executed agreement because on or about February 4, 2020, the company that hosts the server for [his] email deleted all prior emails sent or received” is not credible. The different signed versions of the Agreement that Laba produced in this action were created on March 10, 2020 (ECF No. 247 ¶¶ 22-23, evaluating metadata from FFA-003) and April 13, 2020 (ECF No. 247 ¶¶ 29-30, evaluating metadata from FFA-004). Notably, both these documents were created after the relevant email was supposedly deleted, immediately prior to Laba's demand letter and institution of this suit and more than a year after the contract supposedly was signed and email attaching it was sent. The timing is highly suspect. Additionally, Laba produced other emails from the spring of 2019 - that is, emails created and sent in or about the same time as the supposedly deleted email. Laba provides no explanation for why some emails from 2019 were not deleted and could be produced but the most important email - the one from JBO attaching the agreement signed by Liebenberg - could not be produced.
• The contention that the company that hosts the server for Laba's email deleted his prior emails is not a sufficient explanation for failure to locate the email containing the signed Agreement allegedly sent by JBO. This is because the email would likely exist on devices
Laba used when he received the email, possibly in the cloud or in other storage areas. Laba testified he uses Outlook, and JBO's expert persuasively testified that Outlook syncs email between the online server and the local drive so that typically all emails exist in both locations. Thus, the hosting company's deletion of emails on a server would not affect local copies. (ECF No. 247 ¶¶ 85-90; Hearing Tr. 36-37.) The Court is very familiar with electronically stored information and finds Laba's explanation for why he couldn't find the critical email that would supposedly authenticate Liebenberg's signature and Laba's receipt of the signed agreement to be not credible. Laba's “the dog at my homework” excuse is not a bona fide or good faith excuse.
• Laba produced a version of the Agreement that contained only Liebenberg's signature -referred to as FFA-005 in JBO's expert's report. (ECF No. 247 ¶ 66) Unlike other versions of the agreement, no metadata was produced with this version. Instead, it was included at the end of a pdf containing multiple documents and no way to evaluate the metadata of the individual documents within the pdf. This is a highly suspect way of producing a document and indicative of a motive to hide metadata. When the Court questioned Laba's counsel about the nature of the production at the evidentiary hearing, he had no satisfactory explanation. (Hearing Tr. 77-78.)
• Laba had motive to affix Liebenberg's signature to the Agreement because the agreement would significantly bolster his claim for a finder's fee.
• Liebenberg filed a declaration with the Court, denying that he placed the electronic signature on the Agreement and stating that he repeatedly refused to sign. (ECF Nos. 55, 245.)
• The Agreement presented by Laba and his counsel as a final, signed agreement appears to be a draft insofar as there are business name misspellings and blanks. Most notably, the name of Liebenberg's company (JBO)-- for which he purportedly signed--is misspelled. (ECF No. 247 ¶ 21; FFA-003 and FFA-004.) It is highly suspect that the CEO of JBO would have signed an agreement on behalf of JBO without correcting the spelling of the company's name.
• When comparing unsigned versions of the Agreement and ones containing Liebenberg's signature block, the text is not aligned as it should be. (ECF No. 247 ¶¶ 66-73; comparing unsigned versions FFA-001 and FFA-002 to FFA-003 and FFA-004.) Specifically, there is an additional space within the Liebenberg signature block that was added to the signed versions. (Hearing Tr. p. 29-31.) The red line drawn below in the pictures of the signature blocks of the draft and signed versions of the contract readily shows the misalignment. This suggests that that Liebenberg's signature is a fabrication. (Id.)
(Image Omitted)
• Other documents produced in the case that contain Liebenberg's signature show application of a stand-alone digital signature, not a whole signature block with a typed signature line and typewritten text. In other words, when signing other documents electronically, Liebenberg applied a stand-alone electronic signature to a pre-existing signature line on a document. This is a typical and standard way to apply electronic signatures. (ECF No. 247 ¶¶ 77-80.) In contrast, the Liebenberg signature in the signed versions of the Finder's Fee Agreement produced by Laba was applied as a signature block. JBO's expert persuasively opined that the entire block was created by application of the stand-alone digital signature copied from another contract to a blank page and then application of the surrounding signature block (i.e., the line and typed name below the signature was applied on top of the picture of Liebenberg's digital signature). This method of creation allows the digital signature to be fully visible, including the loop that falls below the signature line and across the typewritten name. (Hearing Tr. p. 19-22.) This method of creation and application is highly unusual and, as JBO's expert persuasively testified, consistent with a fabricated digital signature. (ECF No. 247 ¶¶ 8183) A comparison of Liebenberg's signature on a valid contract as compared with the signature block added to the Finder's Fee Agreement is reproduced below to illustrate. The blue boxes around the signature and signature block show the portion of the signature or block pasted onto the agreements.
Liebenberg signature from an authentic agreement applied above a signature line:
On behalf of Coco Safar International
(Image Omitted)
• There were two different versions of a fully executed Agreement produced, as evidenced by differences in Laba's signature. (ECF No. 247 ¶ 66, 74; compare contract version referred to as FFA-003 to version referred to as FFA-004 below.) The differences in the signatures are readily apparent by visual inspection and are reproduced below. The initial “R” differs, as does the placement of the signature relative to the word “[Signature]” below, as does the slant of the last name “Laba.” JBO's expert also opined they were different. One version was produced as a scanned PDF created on March 10, 2020. Laba's signature on this version is consistent with an ink signature on a document that is scanned. (Id. at ¶ 24, discussing FFA-003; Hearing Tr. 14-16.) The other version is a pdf created on April 13, 2020 and last modified on April 21, 2020. Laba's signature on this version is a digital image that has been overlayed into the document. (ECF No. 247 ¶ 31; Hearing Tr. 14-16.) If there were a valid fully executed agreement, there would be
no reason for Laba to sign the agreement a second time and in different manner. In other words, that two different versions of the fully signed agreement exist is highly suspect.
FFA-003 March 10, 2020
(Image Omitted)
• Laba elected not to appear at the evidentiary hearing to defend his conduct or be subject to additional cross examination. Thus, the Court is left with his Declarations that contain simple denials and feigned outrage at being accused of misconduct (See, e.g., ECF No. 238), as well as his evasive deposition testimony concerning the missing email.
Laba also elected not to submit additional testimony from his computer expert to rebut the opinions of JBO's expert. In any event, Laba's computer expert's submission at ECF No. 271 in which he opines that there in “nothing that stands out as unusual” about Liebenberg's signature on the Agreement is unpersuasive in light of the above facts and circumstances.
The above facts and circumstances lead to the inescapable conclusion that a fraud has been committed on the Court in the form of Laba's false declarations and testimony that he received the Agreement from JBO signed by Liebenberg and that he simply could not authenticate it because his email server company “deleted” the email from JBO attaching the signed contract. The Court also finds that Laba and his counsel acted in bad faith, because the fabricated Liebenberg signature was obvious at least by December 15, 2021, when JBO filed its discovery sanctions motion and Laba could no longer state that emails would show the contract was authentic. Yet, neither Laba nor his counsel corrected the record or withdrew the false statements contained in Laba's Declarations. Instead, Laba and his counsel maintained through the end of this litigation and at the evidentiary hearing on this motion that (1) the only reason the problem of authenticity could not be solved was the missing email and (2) the issue of the fake signature was irrelevant because Laba had not relied on the contract in the end, withdrawing his claim based on the written agreement. But Laba and his counsel are mistaken - withdrawal of a claim that should not have been asserted in the first place and failure to correct a misrepresentation to the Court is sanctionable behavior. Thus, as discussed below, sanctions should be imposed pursuant to the Court's inherent power to address the abuse of process and fraud on the Court.
4. Recommended Sanctions
In this case, Laba's withdrawal of reliance on the fraudulent Agreement at the summary judgment stage is not sufficient to avoid a sanction. Laba should not have relied on that document at any point in the case and was obligated to withdraw his declarations and correct the record. Simply admitting that he could not authenticate the signature does not go far enough. JBO had to expend time and resources to evaluate the bona fides of the alleged Agreement until Laba agreed to withdraw reliance on the contract, and the Court had to spend time evaluating multiple motions regarding the contract. This time would never have been spent had Laba never purported to have received a validly signed contract. In this day and age of electronic documents and signatures it is easy to create fake documents and commit fraud. Counsel must be vigilant in scrutinizing their client's claims and have an independent duty as officers of the Court to ensure that they are not perpetuating fraud. Parties cannot create fake documents and submit them to Court and when challenged simply say that an email went missing to avoid sanctions. Litigation is not a game. There is no doubt that Laba and his counsel acted in bad faith when arguing that the fraudulent contract simply could not be authenticated when they knew or should have known that Liebenberg's signature was fabricated and there was no bona fide written Agreement between JBO and Laba.
Courts in this District have awarded sanctions for conduct similar to what occurred in this case. In Rybner v. Cannon Design, Inc., the plaintiff produced notes about the case that were written on the reverse of a draft resume that was submitted to defendant for employment. 1996 WL 470668, at *2 (S.D.N.Y. Aug. 20, 1996). During his deposition, the plaintiff testified about his work experience and affirmed that the draft resume was accurate. Later, the plaintiff said he made certain misstatements with respect to his previous employment during his deposition, which he wished to correct on the second day of his deposition. Despite not being strictly relevant to the claim at issue and despite correction, the court imposed sanctions on the plaintiff under its inherent power in the form of costs and reasonable attorneys' fees incurred by defendants in bringing the sanctions motion and taking the first and second deposition. Id. Similarly, in this case, Laba submitted a fabricated agreement to the Court and made misstatements in sworn declarations submitted to the Court and in a deposition. Unlike in Rybner, however, Laba never stated a desire to correct the record. Despite numerous opportunities to withdraw his false statements about the authenticity of the Liebenberg signature and the missing email, he did not correct the record and relied on bogus explanations. Therefore, Laba should be sanctioned. See also Cerruti 1881 S.A. v. Cerruti, Inc., 169 F.R.D. 573, 577 (S.D.N.Y. 1996) (finding that defendant's testimony about the use of a trademark and about missing records were uncorroborated and false and that sanctions were appropriate under the court's inherent powers because defendants did not withdraw the documents on their own); S.E.C. v. Smith, 710 F.3d 87, 97 (2d Cir. 2013) (affirming sanctions in the form of attorneys' fees and costs for relevant motions on a defendant who omitted disclosure of an interest in a relevant trust in sworn documents that were submitted to the court); Lawrence v. City of New York, 2018 WL 3611963, at *6 (S.D.N.Y. July 27, 2018) (awarding sanctions in the form of dismissal where a pro se plaintiff submitted doctored photographs of her apartment that allegedly showed the condition of her apartment after police came to her home saying whether plaintiff “personally created the photographs or not, she embraced them and willingly testified that they accurately depicted the condition of her apartment”). In particular, JBO should be awarded its costs and fees incurred in investigating the false documents and bringing the instant motion.
It is also appropriate to sanction Laba's counsel. In Rossbach, the Court granted sanctions because it found that plaintiff had fabricated three text message to support her claims of harassment. 2021 WL 3421569, at *6-8. The court not only dismissed the case but awarded defendant its attorneys' fees and costs incurred in connection with investigating the claim, filing the sanction motion and appearing at an evidentiary hearing. The court found that counsel should have conducted a reasonable investigation into the authenticity of the images, ensured that the plaintiff's data from her phones was preserved to prevent spoliation, taken mitigating steps to ensure the court was not misled, and if necessary, withdrawn from representing the client. The court found it appropriate for both plaintiff and counsel to be jointly and severally liable for paying the reasonable attorneys' fees and costs associated with addressing the misconduct. Id. Similarly in this case, counsel did not do enough to evaluate the recoverability of the missing email and the validity of the Liebenberg signature on the agreement. It was insufficient for counsel to simply withdraw reliance on the fabricated agreement at the motion for summary judgment stage. This did not cure the fraud on the Court because Laba continued to maintain that he had received a validly signed contract and that the only reason that he was withdrawing reliance on it was that he couldn't “authenticate” the signature because his email was deleted-a position that was untenable given the evidence discussed above. See Doe 1 v. E. Side Club, LLC, 2021 WL 2709346, at *30 (S.D.N.Y. July 1, 2021), reconsideration denied sub nom. Doe 1 v. E. Side Club, LLC, 2021 WL 4711249 (S.D.N.Y. Oct. 8, 2021) (finding plaintiff's misrepresentations about the full nature of a related action and a false deposition about the scope of the action warranted sanctions on counsel under its inherent powers even where plaintiff came clean and voluntarily dismissed the case in its entirety).
New York Rules of Professional Conduct provide that if “the lawyer's client ... has offered material evidence and the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal.” N.Y. Rules of Prof. Con. 3.3(a)(3). Lawyers are also forbidden from “knowingly us[ing] perjured testimony or false evidence” or “participat[ing] in the creation or preservation of evidence when the lawyer knows or it is obvious that the evidence is false.” N.Y. Rules of Prof. Con. 3.4(a). If a lawyer “knows or reasonably should know that the representation will result in a violation of” the Rules of Professional Conduct, the lawyer “shall withdraw from the representation of a client.” N.Y. Rules of Prof. Con. 1.16(b) (1). After the completion of discovery at the latest, Laba's counsel should have recognized that the signed contract was fraudulent and withdrawn from representation of Laba or explicitly corrected the record. Based on the evidence discussed above, it should have been obvious to counsel, as it is to this Court, that Laba had proffered a fraudulent contract and that his deleted email excuse was bogus. Counsel's failure to recognize what his client was doing and to continue to defend his client's actions was improper and inconsistent with the obligations of attorneys practicing before this Court.
Therefore, sanctions should be imposed against both Laba and his counsel for committing a fraud on the Court. As discussed below, I recommend that sanctions in the form of JBO's costs and attorneys' fees incurred in connection with investigating the false signature and bringing this motion be awarded and that Laba and his counsel be jointly and severally responsible for paying them. I also recommend non-monetary sanctions on Laba's counsel as set forth below.
5. Attorneys' Fees and Costs
Awarding opposing counsel's attorneys' fees and costs is a “well-accepted measure of sanctions for bad faith conduct that unnecessarily prolongs a proceeding and multiplies the expense incurred by an adversary.” Usherson v. Bandshell Artist Mgmt., 2020 WL 3483661, at *20 (S.D.N.Y. June 26, 2020), aff'd in part sub nom. Liebowitz v. Bandshell Artist Mgmt., 858 F.App'x 457 (2d Cir. 2021), and aff'd sub nom. Liebowitz v. Bandshell Artist Mgmt., 6 F.4th 267 (2d Cir. 2021) (internal citations omitted). However, an award of attorneys' fees must “go no further than to redress the wronged party ‘for losses sustained'” and not “impose an additional amount as punishment for the sanctioned party's misbehavior.” Goodyear Tire & Rubber Co. v. Haeger, 581 U.S. 101, 108 (2017). Therefore, the court “can shift only those attorneys' fees incurred because of the misconduct at issue” meaning only the legal bills that the abuse caused and not legal fees that would have been incurred regardless of the wrongdoing. Id.
When awarding fee applications as a sanction, district courts “calculate a lodestar figure based upon the number of hours reasonably expended by counsel on the litigation multiplied by a reasonable hourly rate.” Homkow v. Musika Recs., Inc., 2009 WL 721732, at *25 (S.D.N.Y. Mar. 18, 2009) (internal quotations omitted). “The party seeking fees bears the burden of demonstrating that its requested fees are reasonable.” TufAmerica Inc. v. Diamond, 2016 WL 1029553, at *3 (S.D.N.Y. Mar. 9, 2016), reconsideration granted in part, 2016 WL 3866578 (S.D.N.Y. July 12, 2016), and on reconsideration in part, 2018 WL 401510 (S.D.N.Y. Jan. 12, 2018) (citing Blum v. Stenson, 465 U.S. 886, 897 (1984)). When evaluating hourly rates, the court looks at “what a reasonable, paying client would be willing to pay, given that such a party wishes to spend the minimum necessary to litigate the case effectively.” Bergerson v. New York State Off. of Mental Health, Cent. New York Psychiatric Ctr., 652 F.3d 277, 289 (2d Cir. 2011) (internal citations and quotation marks omitted). The Second Circuit's “forum rule” generally requires use of “the hourly rates employed in the district in which the reviewing court sits in calculating the presumptively reasonable fee.” Id. at 290 (internal citation and quotation marks omitted); see also TufAmerica Inc., 2016 WL 1029553, at *5 (rate must be “in line with those rates prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation”). Courts in this District also have recognized that an “attorney's customary billing rate for fee-paying clients is ordinarily the best evidence of” a reasonable hourly rate. In re Stock Exchanges Options Trading Antitrust Litig., 2006 WL 3498590, at *9 (S.D.N.Y. Dec. 4, 2006).
When evaluating hours expended, the court must make “a conscientious and detailed inquiry into the validity of the representations that a certain number of hours were usefully and reasonably expended.” Haley v. Pataki, 106 F.3d 478, 484 (2d Cir. 1997) (quoting Lunday v. City of Albany, 42 F.3d 131, 134 (2d Cir. 1994)). In determining whether hours are excessive, “the critical inquiry is whether, at the time the work was performed, a reasonable attorney would have engaged in similar time expenditures.” Samms v. Abrams, 198 F.Supp.3d 311, 322 (S.D.N.Y. 2016) (quoting Grant v. Martinez, 973 F.2d 96, 99 (2d Cir. 1992)). “Hours that are excessive, redundant, or otherwise unnecessary, are to be excluded . . . and in dealing with such surplusage, the court has discretion simply to deduct a reasonable percentage of the number of hours claimed as a practical means of trimming fat from a fee application.” Kirsch v. Fleet St., Ltd., 148 F.3d 149, 173 (2d Cir. 1998) (internal citations and quotation marks omitted); accord Alicea v. City of New York, 272 F.Supp.3d 603, 608-09 (S.D.N.Y. 2017); TufAmerica Inc., 2016 WL 1029553, at *3.
The court also considers the Johnson factors:
(1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the level of skill required to perform the legal service properly; (4) the preclusion of employment by the attorney due to acceptance of the case; (5) the attorney's customary hourly rate; (6) whether the fee is fixed or contingent; (7) the time limitations imposed by the client or the circumstances; (8) the amount involved in the case and the
results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the “undesirability” of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.(RC) 2 Pharma Connect, LLC v. Mission Pharmacal Co., 2023 WL 112552, at *2-3 (S.D.N.Y. Jan. 4, 2023) (internal citations and quotations omitted). The court need not make a finding as to all twelve Johnson factors provided that it takes them into account in setting attorneys' fees. Id.
JBO spent $121,708.50 in briefing the sanctions motion, including supplemental briefing, and preparing for the evidentiary hearing and oral argument on the instant motion. This consisted of 128.7 total hours of time expended by two attorneys, a partner Jonathan Moskin and an associate Graham Welch, and a legal assistant, Andrew Hallowell. The work was conducted in two stages - briefing in 2022 and then supplemental briefing and preparation for the hearing and oral argument in 2023. Billing rates increased from 2022 to 2023. The following is a breakdown of the billing rates and time spent by each timekeeper who worked on the motion (ECF No. 360-3; ECF No. 366-2):
• Moskin (before 2023): 38.6 hours, $1,145/hour
• Moskin (after 2023): 40.5 hours, $1,250/hour
• Welch (b1efore 2023): 6.1 hours, $585/hour
• Welch (after 2023): 31.4 hours, $645/hour
• Hallowell (before 2023): 10.5 hours, $250/hour
• Hallowell (after 2023): 1.6 hours, $275/hour
Laba does not contest either the hourly rates charged or the time spent on this motion and does not otherwise raise objections on the basis of a lack of qualifications of the attorneys. However, this Court has considered the qualifications of the two attorneys who performed work on this motion and finds them to warrant the rates charged. Moskin has been admitted to the New York State Bar since 1983 after receiving a law degree from Boston College Law School. Moskin is an intellectual property lawyer and partner at the law firm Foley & Lardner LLP and has acted as lead trial counsel in numerous federal, trial and appellate courts. Welch has been admitted to the New York State Bar since 2021 and is also a member of the Massachusetts State Bar. Welch graduated with a law degree from Boston College Law School in 2017. JBO represents that the rates sought are a slight discount off the firm's regular rates regularly charged to (and paid by) clients. (Moskin Decl., ECF No. 305.) That the rates charged are typical of that charged and paid by the firm's clients is strong evidence that the rates requested are reasonable. In re Stock Exchanges Options Trading Antitrust Litig., 2006 WL 3498590, at *9. Further, the rates are consistent with the prevailing rates in this District. Vista Outdoor, Inc. v. Reeves Family Trust, 2018 WL 3104631, at *6 (S.D.N.Y. May 24, 2018) (finding hourly rates of $1170 -$1260 per hour for partners consistent with rates among firms in New York City); Klipsch Grp., Inc. v. ePRO E-Commerce Ltd, 880 F.3d 620, 633-34 (2d Cir. 2018) (recognizing that “courts routinely award [discovery] sanctions without any discussion of the ultimate merits recovery.”); In re Relativity Fashion, LLC, 565 B.R. 50, 69-71 (Bankr. S.D.N.Y. 2017) (citing cases approving similarly high hourly rates and recognizing higher rate appropriate in connection with sanctions motions). Further, an hourly rate of $585-$645 for a sixth to seventh year associate is also consistent with the prevailing rates in this District. See TufAmerica, 2016 WL 1029553, at *6 (noting that average hourly rate for an associate in this district is $531 and awarding a rate of $560 for a senior associate more than seven years ago); Themis Capital v. Democratic Republic of Congo, 2014 WL 4379100, at *7 n.5 (S.D.N.Y. Sept. 4, 2014) (approving associate rates “from approximately $380 to $682” for associates in case involving “difficult questions of law and fact”). Therefore, the hourly rates for Moskin and Welch are reasonable. Further, while on the higher end for paralegal fees, a legal assistant rate of $250-$275 an hour is not unreasonable or excessive in light of rates awarded in this District, that Laba did not object to these rates, and that this is the rate charged by JBO's counsel to paying clients.
Next, I address the hours billed briefing the present motion and preparing for the hearing and oral argument. In total, JBO's counsel spent 55.2 hours briefing the instant motion and 73.5 hours preparing for an evidentiary hearing and oral argument. While Laba does not raise any objections to the number of hours that JBO billed on the motion and preparing for the hearing, the Court must still ensure that the number of hours billed was reasonable. Having carefully reviewed the time records, I find the hours billed were reasonable considering the large volume of documents that JBO's counsel examined to identify Laba's misconduct, including the findings in four expert declarations and reports from Regard and one from Lopresti, and statements made throughout the litigation to the Court and in emails about the contract and the reasons it could not be authenticated. Moskin and Welch also had to prepare JBO's expert Regard, wrote and researched additional legal issues requested by the Court, and prepared for oral argument for the instant motion. The tasks listed are also clearly described in contemporaneous time records and all relate to the instant motion and for the evidentiary hearing. Further, spending 128.7 hours to brief and prepare for an evidentiary hearing/oral argument on a motion for sanctions is not an unreasonable amount of time, and none of the time records supporting the time spent independently raise concerns. See Fashion Exch. LLC v. Hybrid Promotions, LLC, 2020 WL 4750600, at *3 (S.D.N.Y. Aug. 17, 2020) (finding that even 190 hours was a reasonable number of hours to spend on a sanctions motion where the record was extensive).
JBO also billed $20,622.50 preparing for Laba's deposition and reviewing the transcript, which amounted to 17.5 hours of Moskin's time and 1 hour of Welch's time. The sole reason for this deposition was to obtain testimony about the authenticity of the Agreement and would not have been necessary had the Agreement never been proffered by Laba. The time spent preparing for and taking the deposition was reasonable, and JBO should recover its fees in connection with this work. See Fashion Exch. LLC, 2020 WL 4750600, at *4 (finding 22 hours preparing for a deposition was reasonable).
I have also reviewed JBO's costs. JBO's counsel spent $47,069 for its expert's assistance and testimony in this case. (ECF No. 305-2; ECF No. 366-1.) Payment of this amount is warranted because it would not have been incurred but for the need to prove that the contract was fabricated. See Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer, Inc., 2002 WL 1733681, at *14 (S.D.N.Y. July 26, 2002) (awarding costs of expert witness under inherent powers as part of sanctions). JBO also incurred $1,964 in deposition transcript costs for Laba's deposition. As this deposition was specifically ordered by Judge Hellerstein on the topic of the authenticity of the contract, this cost should also be reimbursed by Laba and Laba's counsel. Rybner, 1996 WL 470668, at *6-7 (finding sanctions in the form of paying for the costs associated with depositions were appropriate).
In sum, I recommend that Laba and Laba's counsel be held jointly and severally liable for sanctions in the form of JBO's attorneys' fees associated with briefing the present sanctions motions, fees associated with preparing for Laba's deposition, and costs associated with Laba's deposition and JBO's expert reports and testimony. I also recommend that Laba's counsel be required to attend 2 hours of ethics courses and 3 hours of courses on ESI discovery and spoliation of ESI taught by a New York-accredited continuing legal education (“CLE”) provider.
CONCLUSION
For the reasons set forth above, I respectfully recommend that JBO's motion for sanctions be granted and that that Laba and Laba's counsel be held jointly and severally liable for a total of $142,331 in attorneys' fees ($121,708.50 billed on the present sanctions motion plus $20,622.50 preparing for Laba's deposition) and $49,033 in costs ($47,069 in expert fees plus $1,964 in deposition transcript fees). I also recommend that Laba's counsel be required to take a total of five hours of ethics and ESI training.
NOTICE
The parties shall have fourteen days from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed.R.Civ.P. 6(a), (d) (adding three additional days only when service is made under Fed.R.Civ.P. 5(b)(2)(C)(mail), (D) (leaving with the clerk), or (F) (other means consented to by the parties)). A party may respond to another party's objections after being served with a copy. Fed. R. Civ. P.72(b)(2).
Plaintiff shall have fourteen days to serve and file any response. Defendant shall have fourteen days to serve and file any response. Any objections and any responses to such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Alvin K. Hellerstein at the United States Courthouse, 500 Pearl Street, New York, New York 10007, and served on the other parties. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Hellerstein. The failure to file timely objections shall result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).