Opinion
01 Civ. 2148 (SAS)
August 12, 2002
Marshall Goldberg, Esq., Daniel M. Young, Esq., Wofsey, Rosen, Kweskin Kuriansky, LLP, Stamford, Connecticut, For Plaintiff.
K. Ann McDonald, Esq., Robinson, Murphy McDonald, New York, New York, Sharon E. Grubin, Esq., General Counsel, New York, New York, For Defendant.
OPINION AND ORDER
I. INTRODUCTION
In November 2000, plaintiff Stamford Computer Group ("Stamford") brought this action against defendant Metropolitan Opera Association, Inc. (the "Met") alleging that the Met breached certain equipment financing agreements between the parties. Over the next year and a half, Stamford pursued this action and the Met repeatedly indicated its intention to move for sanctions. On April 9, 2002, Stamford asked this Court to dismiss the complaint with prejudice pursuant to Rule 41(a)(2) of the Federal Rules of Procedure, and the Court granted that request on April 24, 2002. On April 17, 2002, after Stamford sought dismissal, the Met filed a motion for sanctions pursuant to 28 U.S.C. § 1927 and the Court's inherent powers.
A pre-motion conference with respect to this sanctions motion was held on April 17, 2002. At that time, I tried, unsuccessfully, to dissuade the Met from moving for sanctions. See Transcript of 4/17/02 Conference ("4/17/02 Tr.") at 7-9, 21. I explained that this "collateral litigation" would be expensive and time-consuming, with little to be gained. Id. at 9; see also id. at 10, 13-14. In short, it would not be a productive use of anyone's time. See id. at 8.
The level of contentiousness between counsel and the degree of obstinance demonstrated by both parties has been troubling and burdensome. Cooperation and compromise between counsel was rarely achieved without a Court order. The belligerence exhibited during court appearances and in written submissions was particularly disconcerting. Indeed, the 76 pages of briefing and 118 pages of affidavits submitted on this motion were replete with personal invectives, mudslinging, rumor, gossip, backbiting and bickering.
The parties must realize that my eyesight is not impaired, although they tried hard to achieve that result by submitting documents in small font or with narrowed margins in order to squeeze within the page limits set by this Court. The attempt to evade my page limits is particularly egregious here, where the parties were granted an enlargement of that limit.
That said, it is clear that the parties are not equally at fault. In moving for sanctions, the Met has challenged nearly all of Stamford's conduct during this litigation. While no single action (or inaction) by Stamford was so egregious as to be sanctionable, this is a case where the whole is worse than the sum of its parts. Over six months of discovery, it became clear that Stamford's case, to the extent that it had one, was collapsing. Yet Stamford continued to pursue litigation in the hope of extracting a settlement. As further explained below, this conduct evinces bad faith. Accordingly, limited sanctions are warranted.
II. BACKGROUND
A. The Leases
In November 1994 the Met and Paramount Financial Corporation ("Paramount") entered into a financing lease (the "Master Lease") whereby Paramount agreed to finance the Met's purchases of certain computer equipment and the Met agreed to repay Paramount the principal amount plus interest. See Affirmation of Sharon E. Grubin, the Met's General Counsel ("Grubin Aff.") ¶ 1; Master Lease Agreement ("Master Lease"), Ex. 1 to Grubin Aff. Pursuant to the Master Lease, the Met would lease certain equipment described in so-called "Equipment Schedules" executed between the parties. Master Lease ¶ 1. The "leasing and use of the Equipment" would then be governed by the terms and conditions in both the Master Lease and the Equipment Schedules. Id. (stating that "[e]ach Equipment Schedule shall constitute a separate lease of the Equipment listed therein, and shall incorporate this Master Lease Agreement by reference").
Although the Master Lease is called an "equipment lease," it was more akin to a financing agreement. Transcript of 10/16/01 Conference ("10/16/01 Tr.") at 7-8.
The term of the Master Lease is set forth in Paragraph 3 (the "Evergreen Clause"), which states:
(a) The term of this Agreement, as to all Equipment designated on any Equipment Schedule, shall commence on the Installation Date of such Equipment, and shall continue for an initial period ending that number of months from the applicable Commencement Date as is specified on such Equipment Schedules (the "Initial Period"); thereafter, the term of this agreement for all such Equipment shall be automatically extended for successive three-month periods unless and until terminated by either party giving to the other not less than six months' prior written notice. Any such termination shall be effective on the last day of the Initial Period or the last day of any such successive periods. No Equipment Schedule may be so terminated with respect to less than all items of Equipment identified therein.
(b) Any notice of termination given by either party under Paragraph 3(a) may not be revoked without the written consent of the other party.
Id. ¶ 3 (emphasis added).
Paragraph 6(c) of the Master Lease describes the return of equipment at the termination of a particular Equipment Schedule. See id. ¶ 6 (c). On the termination date, the Met "at its expense" is required to "have packed the Equipment, in a manner specified by the manufacturer, and have it ready for return to Lessor (at the location designated by Lessor within the Continental United States) in good operating order, repair, condition and appearance." Id. The Met is required to "arrange and pay for such repairs (if any) as are necessary for the manufacturer to accept the Equipment under contract maintenance at its then standard rates." Id. If the equipment is not ready for pickup on the termination date, the Met is obliged to "promptly pay [Paramount] per diem rent equal to 10% of the current monthly rent for the Equipment as shown on the Schedule until the Equipment is returned to the Lessor." Id.
Paragraph 6(b) of the Master Lease requires the Met, "during the continuance of [the Master Lease]," to "enter into and maintain in force a contract with the manufacturer (or other qualified service organization approved in writing by both parties) covering at least prime shift maintenance of each item of Equipment." Id. ¶ 6(b). The Met is also required to furnish Paramount with "a copy of such contracts upon demand." Id.
Paragraph 11 of the Master Lease places the risk of loss on the Met. See id. ¶ 11. It states that if any equipment is "lost or is rendered unusable as a result of any physical damage to, or destruction of, the Equipment," the Met shall give Paramount "immediate notice thereof and this Agreement shall continue in full force and effect without any abatement of rental." Id. The Met is required to determine within fifteen days whether any damage or destruction can be repaired and, if it can be repaired, to pay the cost of repair. See id. If the item cannot be repaired, the Met is required to replace the item with "identical equipment . . . and convey title to such replacement to [Paramount] free of all liens and encumbrances . . . ." Id.
Between November 1994 and October 1997, the Met executed eight Equipment Schedules with Paramount, two of which are at issue in this case. See Grubin Aff. ¶ 1. Equipment Schedule 4 ("ES4"), dated October 18, 1996, pertains to box office ticketing systems, including hardware and software. See Equipment Schedule No. 4, Ex. 1 to Grubin Aff. It commenced on November 1, 1996, has an Initial Period of 44 months, and requires monthly rental payments of $36,800. See id. ES4 also states that it "is issued pursuant to the Master Lease Agreement," and that "[a]ll of the terms and conditions of the Master Lease Agreement are hereby incorporated herein and made a part hereof . . . ." Id.
Equipment Schedule 6 ("ES6"), dated May 21, 1997, pertains to "various units of computer equipment." Schedule No. 6, Ex. 1 to Grubin Aff. ES6 commenced on July 1, 1997, has an Initial Period of 36 months, and requires monthly rental payments of ".02893 (the "Lease Rate Factor") multiplied by the total Purchase Price as evidenced on" certain other documents. Id. Like ES4, ES6 states: "All of the terms, covenants and conditions set forth in the Master Lease are incorporated herein by reference as if the same had been set forth herein [in] full except as modified hereby." Id.
In May 2000, Stamford acquired Paramount's rights in the Master Lease, ES4, ES6 (the Leases) as well as other leases. See Affirmation of Daniel M. Young, attorney for Stamford ("Young Aff."), ¶ 3; Grubin Aff. ¶ 1; Complaint ("Compl."), Ex. A to Memorandum of Defendant Metropolitan Opera Association In Support of Its Motion for Sanctions ("Def. Mem."), ¶ 8. The Met acknowledged and agreed to the assignment of the Leases to Stamford. See 5/1/00 Letter Agreement, Ex. 1 to Memorandum of Plaintiff Stamford Computer Group and Its Counsel in Opposition to the Defendant's Motion for Sanctions ("Pl. Opp.").
B. The Dispute Over the Leases
The Initial Period for ES4 and ES6 ended in June 2000. See Grubin Aff. ¶¶ 1-2. In early July 2000, the Met received two invoices from Paramount seeking rent allegedly due on ES4 and ES6 for July and August 2000. See id. ¶ 2. Upon receiving these invoices, Edward Gill, the Met's Director of Finance, spoke to Stamford's President, Lawrence Goichman, telling him that the Met did not believe it was obligated to make these payments. See Grubin Aff. ¶ 2; Affidavit of Edward Benton Gill ("Gill Aff."), attached to Notice of Motion, ¶¶ 4-5; Affidavit of Lawrence W. Goichman ("Goichman Aff.") ¶ 19. Goichman explained that, because the Met had not given notice of its intent to terminate ES4 or ES6, as required by Paragraph 3 of the Master Lease, the Leases were automatically extended 90 days from July 1, 2000. See Goichman Aff. ¶ 19; Gill Aff. ¶ 4; Grubin Aff. ¶¶ 2-3.
The Met retained the ES6 equipment, agreeing to continue its monthly rental payments through the nine-month period — until March 31, 2001. See Grubin Aff. ¶ 19; Young Aff. ¶ 24. During the next couple of weeks, Gill, Goichman, Grubin and Cynthia Dwelle, Stamford's Operations Manager, engaged in a number of conversations about the ES4 equipment, but the parties could not resolve their disagreement. See Grubin Aff. ¶ 3; Goichman Aff. ¶¶ 19-20; Gill Aff. ¶ 6.
Stamford insists that the Met "agreed" with Stamford's position "that the lease did renew with respect to [the ES6] equipment." Young Aff. ¶ 34 n. 12 (emphasis in original). The Met asserts that it did not agree with Stamford's position, but simply "decided to retain the ES6 equipment for nine months at the same exorbitant rent (because it could still, use that equipment and — we thought — avoid another fight with Stamford)." Grubin Aff. ¶ 19.
On July 24, 2000, Grubin wrote to Goichman, stating the Met's position with regard to the ES4 payments as follows:
We believe that the lease does not require such payments under the events that occurred here and, even if it could be construed to require further payment, Stamford is estopped from collecting any. . . . Paramount knew that The Met had stopped using this equipment and would be making no more payments after June 30, and you cannot acquire more rights from the assignments of the lease from Paramount than Paramount had. You are thus estopped from collecting since you are deemed to have known at the time of the assignment.
7/24/00 Letter from Grubin to Goichman, Ex. 2 to Grubin Aff. at 1. Grubin further stated:
[I]nsofar as Stamford believes that anything short of a formal notice of termination has been ineffective, this shall serve as such formal notice of termination of Equipment Schedule 4 [and Equipment Schedule 6]. Pursuant to paragraph 6 of the lease, the equipment has been packed and ready for return for close to a year. Please let me know when you wish to arrange to retrieve it.
Id. at 1-2. Finally, Grubin argued that Stamford would be unlikely to prevail in court, and stated:
In any event, having served as a federal judge for the last sixteen years, I know an enforceable contract and an unenforceable one. There is little doubt in my mind how the courts would view any lawsuit you might bring.
Id.
Goichman replied to Grubin the next day. He pointed out that Paragraph 3 of the Master Lease required that, in order to terminate ES4 or ES6, written notice must be given "not less than 6 months" prior to the effective date of the termination. 7/25/00 Letter from Goichman to Grubin, Ex. 2 to Grubin Aff. He stated that, because Grubin's "notice of intent to terminate was not provided during the Initial Renewal Term, the termination will be effective 6 months from September 30, 2000." Id. Goichman further stated: "We will contact you prior to the end of March 31, 2001 to arrange for the transportation of this equipment from your premises provided that all payments have been made on both [ES4 and ES6]." Id.
After this exchange of letters, Stamford retained Marshall Goldberg of the law firm Wofsey, Rosen, Kweskin Kuriansky, LLP to assist in its dealings with the Met. See Goichman Aff. ¶ 22; Affidavit of Marshall Goldberg ("Goldberg Aff.") ¶¶ 2-3. Shortly thereafter, when litigation appeared likely, Goldberg asked Daniel Young, an associate at his firm, to handle the day to day aspects of the litigation. See Goldberg Aff. ¶ 2; Young Aff. ¶ 3.
On August 3, 2000, Goldberg wrote to Grubin, stating that he believed her July 24th letter was "without legal merit or factual accuracy." 8/3/00 Letter from Goldberg to Grubin, Ex. 2 to Grubin Aff. Goldberg repeated Stamford's position that the Met had failed to give written notice of termination as required by Paragraph 3 of the Master Lease, that failure to provide such notice within the requisite six month period prior to the end of the Initial Term served to extend ES4 and ES6 through the months of July, August and September, and that Grubin's July 24th notice of termination would be effective six months later — in March 2001. See id. Thus, according to Stamford, the Met would be obligated to pay Stamford nine months of rent through March 2001.
As for return of the ES4 equipment, Goldberg stated that he was "particularly intrigued" by Grubin's claim that the "equipment [has been] packed and ready for return for close to a year." Id. He claimed that the equipment in question, which included items such as "cabling, wiring, hubs, routers, PC's, mainframes, monitors, software, cables, furniture, cabinet walls and carpeting," had a value of more that $1.4 million. Id. Thus, he asked: "What do you claim is packed away in cartons? Does it include $1.4 Million Dollars worth of equipment and assets owned by Stamford Computer Group?" Id. Goldberg noted that Paragraph 3 of the Master Lease states that an equipment schedule could not be "terminated with respect to less than all items of equipment identified therein," and told Grubin that "[t]he couple of cartons which you indicate are `packed away' would not appear to embrace the entirety of the equipment." Id. (emphasis added). Finally, Goldberg expressed his view that Grubin's July 24th letter was "an anticipatory breach of the Lease," but added that the Met could "revoke its anticipatory breach" by paying the amounts allegedly due for July and August 2000. Id. at 3. If he did not receive "reasonable assurances that future monthly payments for the balance of the term (March 31, 2001) will be paid as when due," Goldberg warned, he "had been authorized to commence a legal action against [the Met] without further notice or delay." Id.
On August 15, 2000, Grubin responded to Goldberg's August 10th letter, stating that she considered Goldberg's proposal "absurd." 8/15/00 Letter from Grubin to Goldberg, Ex. 2 to Grubin Aff. Grubin complained that, despite the Met's repeated requests, Goldberg had failed to provide "a listing of what equipment [Stamford] claims falls under [ES4]." Id. Stating that she had "had enough," Grubin announced that "[a]ll proposals [were] now off the table." Id. She then added:
If it is within your contemplation to pursue litigation, I suggest you take a look at New York General Obligations Law 5-901 and be advised that, in the event of litigation, I would not only seek our attorney's fees but also seek additional sanctions for frivolous and bad-faith litigation.
Id.
Goldberg replied by letter dated August 16, 2000, insisting that his August 10th letter contained a "good faith proposal" and that he had never promised to provide Grubin with a listing of the equipment that was at issue. 8/16/00 Letter from Goldberg to Grubin, Ex. 2 to Grubin Aff. He again reiterated Stamford's position, stating:
More facts: Your client signed a lease requiring written notice of his [sic] intent to terminate. Neither you nor your client provided the written notice. The lease specifies what happens if no notice is given. The lease required the return of equipment. Your client can't even identify the equipment — let alone return it. The Met hasn't paid the rent.
Your client has Stamford Computer Group's equipment and is not paying for it. One wonders where the "bad faith" lie[s].
In conclusion, Goldberg stated:
Rarely, have I seen a lawyer extend an invitation that her client be sued. Your August 15th correspondence is just such a rarity. Consider the invitation accepted.
Id.
C. Commencement of this Action
On November 13, 2000, Stamford sued the Met in Connecticut State court, alleging breaches relating to ES4 and the Master Lease. See Grubin Aff. ¶ 7; Young Aff. ¶ 7; Report of Parties' Planning Meeting, Ex. 7 to Pl. Opp., at 2-4. At that time, the Met's outside counsel was John Burleigh, of the law firm Jacobs, deBrauwere Dehn, LLP. See Young Aff. ¶ 7.
On December 18, 2000, the Met removed the action to federal court in the District of Connecticut. See Grubin Aff. ¶ 7; Young Aff. ¶ 7; Report of Parties' Planning Meeting at 1-2. In January, 2001, the Met told Stamford and the court that it believed there was no basis for personal jurisdiction in Connecticut, but consented to a period of discovery as to personal jurisdiction, service and venue. See Report of Parties' Planning Meeting at 2, 5-6; Young Aff. ¶ 7; Grubin Aff. ¶ 7; Affidavit of John F. Burleigh ("Burleigh Aff.") ¶ 3.
On January 24, 2001, the Met filed a motion to dismiss for lack of jurisdiction and improper venue, or alternatively for transfer to the Southern District of New York. See Motion to Dismiss the Complaint Pursuant to Fed.R.Civ.P. 12(b)(2) (3) ("Motion to Dismiss"), Ex. 1 to Burleigh Aff.; Young Aff. ¶ 8. After the Met filed its motion, Stamford informed the Met that it would consent to transfer to the Southern District of New York. See Young Aff. ¶ 8; Burleigh Aff. ¶ 4. In its opposition papers to the Met's motion, Stamford provided its basis for believing that jurisdiction existed in Connecticut, but also indicated that it would consent to a transfer to New York. See id. ¶ 10; Grubin Aff. ¶ 8. On February 22, 2001, the Connecticut district court ordered the action transferred to this Court. See 2/22/01 Endorsement on Motion to Dismiss ("Transfer Order"); Young Aff. ¶ 10.
In its reply papers, the Met sought sanctions from the Connecticut district court for Stamford's allegedly improper assertion of jurisdiction in Connecticut. See Burleigh Aff. ¶ 6; Young Aff. ¶ 11. The Connecticut district court could not have considered this request, however, because it ordered the case transferred prior to receiving the Met's reply papers. See Burleigh Aff. ¶ 5; Transfer Order; Reply Memorandum of Law in Support of Defendant's Motion to Dismiss the Complaint Pursuant to Fed.R.Civ.P. 12(b)(2) (3), Ex. A to Burleigh Aff.
The case was transferred to this Court on March 14, 2001. At an initial conference held on April 10, 2001, this Court reminded the parties of the initial mandatory disclosure requirements of Rule 26(a) and set a schedule for such disclosures. See Young Aff. ¶ 12. Over the next month, Stamford served its Rule 26(a) initial Disclosures, but the Met's disclosures were not complete. See id. ¶¶ 13-16. Young complained that he thought Burleigh was "proceeding in bad faith," but in early June, 2001, Burleigh withdrew from the case. Id. ¶ 16. Burleigh was replaced by Ann McDonald of the law firm Robinson, Murphy McDonald.
D. Continuing Dispute over the Return of Equipment
On March 29, 2001 — nine months after the Met's notice of termination of ES4 and ES6 — Young wrote to Grubin demanding the immediate return of all equipment under ES4 "pursuant to the terms of the Master Lease." 3/29/01 Letter From Young to Grubin, Ex. 4 to Grubin Aff. He added: "If you wish additional shipping instructions, please contact the Lessor directly." Id. Grubin responded that same day, stating: "We have received no shipping instructions whatsoever, and if you or the Lessor wish to arrange shipment we will do so if you provide us with the address to which the Equipment should be shipped." 3/29/01 Letter from Grubin to Young, Ex. 4 to Grubin Aff.
Also on March 29, 2001, Maribel Garcia, Stamford's Marketing Manager, called Grubin to arrange for the pick up of the ES6 equipment. See Grubin Aff. ¶ 20. Two days later, Stamford had the equipment picked up and taken to a refurbishing center in New Jersey. See id. Several days later, Garcia called Grubin to say that the only description of the ES6 equipment she could find was in the lease documents that simply described "computer equipment." Id. Grubin informed her that Paramount had never required the Met to specifically identify the items purchased under ES6. See id.
Many of the documents in this case refer to Garcia by her maiden name, Valencia, because she was recently married. See Affidavit of Maribel Garcia, Stamford's Marketing Manager, ¶ 2; Grubin Aff. ¶ 27 n. 10. Throughout this opinion, she is referred to by her married name.
On April 25, 2001, Cynthia Dwelle, Stamford's Operations Manager, wrote to Grubin requesting that the Met provide documentation itemizing the ES6 equipment so that Stamford could check that all of the equipment had been returned. See 4/25/01 Letter from Dwelle to Grubin, Ex. 13 to Grubin Aff. Dwelle reminded Grubin that Paragraph 9(c) of the Master Lease required the Met to deliver to the Lessor ". . . agreements, documents, instruments and certificates that the Lessor may reasonably request . . . in order to effect the Lessor's purchase of the equipment or financing thereof." Id. She warned Grubin that Stamford would have to "commence an action" if such documentation was not provided within ten days. Id. Grubin replied by letter dated May 5, 2001. See 5/5/01 Letter from Grubin to Dwelle ("Grubin 5/5/01 Ltr."), Ex. 13 to Grubin Aff. Grubin insisted that Paragraph 9(c) applied only to "the making of the lease, not its termination." Id. She claimed to have reviewed the "invoices and other documentation" regarding ES6 equipment to ensure that everything was returned, but insisted that the Met had "no obligation under the lease" to provide these documents to Stamford. Id. Grubin added that if Stamford truly had no way of checking that all the equipment was returned, it could not "lay [its] negligent record-keeping at the Met's door." Id. In closing, she stated: "Incidentally, it is a violation of the canons of ethics to threaten litigation without any reasonable basis." Id.
Grubin implied in her May 5th letter that Stamford should have received the requested documentation from Paramount. See Grubin 5/5/01 Ltr. Stamford asserts that "neither Paramount nor the financing bank had obtained such documentation originally from the Met, as they, unfortunately, believed it was unnecessary in light of the Met's reputation." Young Aff. ¶ 36; see also Dwelle Aff. ¶ 7.
Having received no documentation from the Met, Stamford attempted to inventory the returned ES6 equipment based on the information it received from the refurbishing center, Startech Computer Services ("Satartech"). See Young Aff. ¶¶ 36-37; 5/15/01 Letter from Garcia to Grubin ("Garcia 5/15/01 Ltr."), Ex. 13 to Grubin Aff. On May 15, 2001, Garcia wrote to Grubin informing her that some items were missing or damaged. See Garcia 5/15/01 Ltr. She again asked for any documentation the Met could provide regarding the ES6 equipment, and asked Grubin to contact her if the Met located the missing equipment. See id. Garcia informed Grubin that "partial rental would of course continue on all missing items until they are returned" and that, "without [Grubin's] help, [she had] no other option" than to ask Stamford's lawyer to include her audit of missing items in the ongoing litigation. Id.
Some time between May 15 and May 30, 2001, Stamford determined that the allegedly missing equipment had actually been misplaced by the refurbishing center and related this information to the Met. See Young Aff. ¶ 27; Grubin Aff. ¶ 21; Garcia Aff. ¶¶ 6, 10-11.
E. Settlement Negotiations
On June 29, 2001, upon the request of the parties, this Court issued a 90-day Order of Discontinuance so that the parties could pursue settlement. The first settlement meeting was held a few weeks earlier, on June 12, 2001, and was attended by Grubin, Goldberg, Goichman, and Freda Gimpel, the Met's new Finance Director. See Young Aff. ¶ 17; Grubin Aff. ¶ 9. At that meeting, the Met disclosed to Goldberg (who subsequently related to Young) a letter dated November 1994 in which Paramount abandoned any claim for "network wiring and box office construction." See 11/29/94 Letter from Paramount to Mitchell Heskell, Comptroller of the Met, Ex. 3 to Grubin Aff.; see also Young Aff. ¶ 17; Grubin Aff. ¶ 9. After learning about that letter, Stamford never again contended that it was entitled to the return of these items. See Young Aff. ¶ 17; Tr. at 17.
The Met complains that, at the June 12, 2001, settlement meeting, Goichman handed Grubin a letter dated May 30, 2001, listing missing equipment despite the fact that the Met had already been informed by Stamford that this equipment was not missing but had been misplaced by the refurbishing center. See Grubin Aff. ¶ 22; 5/30/01 Letter from Goichman to Grubin, Ex. 13 to Grubin Aff. Goichman attests that he drafted this invoice when Garcia was out of the office and gave it to Grubin before he was informed of the refurbishing center's mistake. See Goichman Aff. ¶¶ 28-29; see also Young Aff. ¶ 37; Garcia Aff. ¶ 12. He states that, when he eventually learned that the invoice was inaccurate, Garcia informed him that the Met would not be misled by the invoice because it had already been informed of the refurbishing center's mistake. See id. ¶ 29; see also Garcia Aff. ¶ 12; Young Aff. ¶ 37.
Goichman testified and Dwelle attested that Paramount had never provided Stamford with this letter. See 1/29/01 Deposition of Lawrence Goichman ("Goichman Dep."), Ex. 5 to Grubin Aff., at 38-39; Dwelle Aff. ¶ 7.
Shortly after the June 12th settlement meeting, the Met provided Stamford with a recently created spreadsheet purporting to show that $549,148 of the $1.4 million financed by Paramount under ES4 was used for "internal costs." See Young Aff. ¶ 19; Met's Analysis of Internal Costs, Stamford Lease #4, Ex. 3 to Pl. Opp. The chart detailed how the Met spent $538,058.16 of this financing on payroll and consulting fees, and stated that there was an unreconciled difference of $11,089.84. See Met's Analysis of Internal Costs. The Met also produced payroll records which purportedly substantiated this spreadsheet. See Young Aff. ¶ 19; Pl. Mem. at 18; Collection of Payroll Records, Ex. 7 to Grubin Aff. The Met did not, however, produce any documentation linking ES4 financing to these payroll expenditures or provide any explanation for the apparent $11,089 discrepancy. See Young Aff. ¶ 19.
On September 20, 2001, Young wrote to the Court requesting a conference because settlement negotiations had been unsuccessful. See Grubin Aff. ¶ 11; Young Aff. ¶ 21. He sought to discuss a new scheduling order, the filing of an amended complaint, and discovery disputes that had arisen between the parties. See Young Aff. ¶ 21. The action was returned to the Court's calendar on September 25, 2001. See Grubin Aff. ¶ 11.
F. Amended Complaint
On October 5, 2001, the Court held an unrecorded telephone conference with the parties. See Young Aff. ¶ 22; Grubin Aff. ¶¶ 7, 11. During that conference, Young informed the Court that he sought leave to file an amended complaint to add claims under ES6. See Grubin Aff. ¶ 11. Grubin opposed such a filing. See 10/16/01 Tr. at 3; Grubin Aff. ¶ 11. She informed the Court that she believed that sanctions were warranted and that the Met would submit a Rule 11 letter. See 10/16/01 Tr. at 3; Grubin Aff. ¶ 11. During that telephone conference, the Court ordered Young to fax Grubin a copy of the proposed amended complaint, and scheduled an in-person conference to continue discussions of the parties' discovery disputes. See Young Aff. ¶ 22; Grubin Aff. ¶ 11.
The parties disagree as to whether, during the October 5th telephone conference, the Court actually granted Stamford leave to file the amended complaint. See Grubin Aff. ¶ 11; Young Aff. ¶ 9.
On October 8, 2001, Young filed an Amended Complaint and faxed and mailed a copy to Grubin. See Grubin Aff. ¶ 11; Young Aff. ¶ 40; Amended Complaint ("Am. Compl."), attached to 10/8/01 Letter from Young to the Court. The Amended Complaint alleged four counts. Counts I and II, concerning ES4, were identical to those in the original complaint. Count I alleged breaches of ES4 for:
(a) Failure to make monthly rental payments since June 30, 2000, which were allegedly owed because the Met's failure to return the equipment triggered the automatic renewal provision of the Evergreen Clause.
(b) Failure to maintain maintenance contracts on the ES4 equipment.
(c) Failure to pay the per diem rent of 10% of the current monthly rent which was allegedly owed because the Met did not have the ES4 equipment "ready for pickup on the termination date."
Count II alleged breach of the covenant of good faith and fair dealing implied in ES6. Count III alleged breaches of ES6 for:
(a) Refusal to return all of the ES6 equipment.
(b) Return of damaged or non-working ES6 equipment.
Count IV alleged breach of the covenant of good faith and fair dealing implied in ES6.
G. The October 16th Conference
An in-person conference was held on October 16, 2001. At that conference, Grubin complained that Stamford refused to pick up the ES4 equipment because picking it up "would be conceding that the lease wasn't continuing to run until the end of March." 10/16/01 Tr. at 14. Young explained that Stamford had not picked up the equipment because the "two boxes" offered by the Met could not possibly contain all of the equipment, which had a minimum original value of $500,000. See id. at 6, 24-25. Young also complained that, if Stamford picked up the ES4 equipment, it could not determine whether it was returned because, despite his requests, the Met refused to provide records indicating what items were purchased with the ES4 financing. See id. at 32. He explained that Paramount had provided $1.4 million worth of financing under ES4 and that the invoices he had from the Met only accounted for approximately $500,000 of this amount. See id. at 5-6.
The Met's claim that, at this conference, Young insisted that "the Met owed Stamford $1.4 million worth of equipment" misconstrues Young's position at the conference. Grubin Aff. ¶ 12. Young never insisted that Stamford was owed $1.4 million worth of equipment. Rather, he claimed that he only had invoices for about $500,000 of equipment and that he wanted to know how the remainder of the $1.4 million had been spent. See 10/16/01 Tr. at 5. Moreover, he admitted that he was not entitled to "the floors and the walls and the wires." Id. at 17.
Grubin stated that "about two-thirds" of the $1.4 million was spent on items other than hardware and software, such as "consulting fees, buying furniture, putting up walls, literally taking down walls, putting wiring under the floors, laying new carpet." Id. at 7. She insisted that the documents she had provided to the Met during settlement negotiations (the spreadsheet and payroll records) substantiated this claim. See id. Grubin also offered a document, which the Court instructed her to hand to Young. that she claimed was "the acceptance certificate signed by Paramount and signed by the Met" for ES4, listing expenditures for consulting fees and other labor. See id. at 10; see also Ex. 7 to Grubin Aff. Young stated that he was "almost positive" he had never seen the document before. 10/16/01 Tr. at 10.
At the conference, Young also complained that, despite his requests, the Met had refused to provide the maintenance contracts to prove compliance with the Master Lease. See id. at 19. Grubin had produced bills for maintenance one day before the conference, but had not provided the actual contracts. See id.
Having heard the parties' arguments, the Court ordered Stamford to pick up the equipment from the Met, to inventory the equipment, and to determine what, if anything, was missing. See id. at 25-27. The Met was ordered to produce all of the records showing what was purchased with the ES4 and ES6 financing as well as the maintenance contracts they claimed to possess. See id. at 18-19, 32-35.
After the conference, Young informed Grubin that Stamford would immediately pick up the ES4 equipment. See Young Aff. ¶ 24. Grubin said that she would contact him when the equipment was ready for pick-up. See id. Approximately two weeks later, the equipment was picked up and sent to a storage facility in New Jersey. See id.; see also Grubin Aff. ¶ 14.
On October 25, 2001, the Met sent Stamford the invoices and other documents related to the ES4 equipment. See 10/25/01 Letter from Grubin to Young, Ex. C to Plaintiff's First Requests for Admission, Ex. 2 to Pl. Opp.; Young Aff. ¶ 28. However, the Met did not produce the documentation for the ES6 equipment at that time. See 12/18/01 Letter from Grubin to Young, Ex. D to Plaintiff's First Requests for Admission. Despite the Court's order, the Met never produced the actual maintenance contracts for the ES6 equipment, as opposed to bills. See Young Aff. ¶ 23 n. 9. The Met never produced any documents relating to maintenance of non-IBM equipment and, after several requests from Young, Grubin eventually informed Young that she could not find any actual contracts. Id. Sur-Reply Memorandum of Plaintiff Stamford Computer Group and Its Counsel in Further Opposition to the Defendant's Motion for Sanctions ("Pl. Sur-Repl.") at 3 (citing Sur-Reply Affirmation of Daniel M. Young ¶ 9).
H. October 31st Settlement Conference
The Court conducted an unrecorded settlement conference with the parties on October 31, 2001. See Grubin Aff. ¶ 13; Young Aff. ¶ 25. Young acknowledged that if the Met could prove that the $521,548 of "internal costs" represented intangible items such as labor and consulting fees, then Stamford could have no claim to that amount. See Grubin Aff. ¶ 13. He stated, however, that Stamford still did not have documentation showing exactly how this $521,548 in ES4 financing was spent. See id. Grubin again showed the Court and Young the documents it had provided at the October 16th Conference, claiming that these documents showed what these "internal costs" were and that Stamford was fully aware of these costs prior to bringing suit. See id. The Court warned Stamford that discovery into what had been purchased with funds reimbursed for "internal costs" was questionable, because of the Court's preliminary view that "internal costs" likely did not include equipment that would have to be returned. See Young Aff. ¶ 25. The Court nonetheless authorized Stamford to take depositions concerning how the $521,548 had been spent. See id. In addition, the Court again acknowledged the Met's intention to seek sanctions. See Grubin Aff. ¶ 13.
I. Events Subsequent to the October 31st Conference
On November 8, 2001, Dwelle wrote to Grubin informing her that Stamford had inventoried the returned ES4 equipment and compared it to the invoices and checks provided by the Met. See 11/8/01 Letter from Dwelle to Grubin ("Dwelle 11/8/01 Ltr."), Ex. 8 to Grubin Aff.; Young Aff. ¶ 28. Dwelle claimed that a substantial amount of equipment was missing and attached a list of missing equipment which included "casualty values" for most, but not all, of the items listed. See Dwelle 11/8/01 Ltr.; Young Aff. ¶ 28. She asked Grubin to review the list and contact her to discuss "a mutual settlement of Schedule No. 4." Dwelle 11/8/01 Ltr. If the parties could "not resolve these items," Dwelle added, Stamford would "have no choice but to amend [its] complaint and ask the judge to be more aggressive in her demand for a settlement based upon the Casualty Value of the Equipment." Id. She informed Grubin, however, that Stamford would not demand the cost of intangible items reflected in the so-called "internal costs." See Dwelle 11/8/01 Ltr.; Young Aff. ¶ 27; Grubin Aff. ¶ 14.
The total value of items to which a value was attached was $438,592. See Dwelle 11/8/01 Ltr.
Grubin replied to Dwelle by letter dated November 14, 2001. See 11/14/01 Letter from Grubin to Dwelle, Ex. 9 to Grubin Aff. Grubin explained that much of the discrepancy identified by Dwelle was due to the fact that the Met had returned some replacement equipment instead of the original equipment purchased with ES4 financing, and noted that "the Lease is very clear that if the original equipment can no longer be returned, it is to be replaced by like equipment." Id. at 1. Grubin also questioned Dwelle's reference to "casualty losses." Id. She noted that, pursuant to Paragraph 6(c) of the Master Lease, the Met was required to "arrange and pay for . . . repairs" of any damaged equipment and offered to arrange for repair of any equipment the Met could verify as damaged. Id. (quoting Master Lease ¶ 6(c)). Finally, Grubin objected to Stamford's listing "software" as missing because, not only had the Met sent some software "loaded in the machines," but Stamford was "not entitled to software." Id. at 2. In a subsequent telephone conversation, Grubin explained to Young that she believed that Stamford was not entitled to software because Stamford's Purchase Agreement with Paramount expressly excluded "any software, services or intangible property." Grubin Aff. ¶ 15 (quoting Purchase Agreement, Ex. 10 to Grubin Aff., §§ 1, 6.1(k)); see also Young Aff. ¶ 31.
Stamford accepted the "replacement" equipment identified by Grubin, despite the fact that the Met had never provided it with the notice and title required by Paragraph 11 of the Master Lease. See Young Aff. ¶ 18; Master Lease ¶ 11. Still, Stamford's corrected inventory of returned items showed that the Met did not return a number of ES4 items. See Metropolitan Opera Schedule No. 4 Revised Missing Equipment, attached to 1/14/02 Letter from Young to Ann McDonald, attorney for the Met, Ex. 12 to Grubin Aff.; Young Aff. ¶ 28.
On November 15, 2001, Young sent Grubin an updated invoice listing damaged ES6 equipment, as well as software and manuals that were missing. See Young Aff. ¶ 43; 11/15/01 letter from Young to Grubin ("Young 11/15/01 Ltr."), Ex. 14 to Grubin Aff. He also offered to make the returned ES6 equipment available for the Met to "confirm its condition." Young 11/15/01 Ltr.
In December 2001, Goichman learned that Stamford was expending hundreds of dollars each month to store the ES6 equipment. See Goichman Aff. ¶ 41. He asked Young to inform the Met that Stamford would continue to store the equipment but would like an inspection to occur as soon as possible. See id. On December 13, 2001, Young wrote to Grubin reminding her that, despite numerous invitations, the Met had yet to inspect the returned ES6 equipment. See 12/13/01 Letter from Young to Grubin, Ex. 15 to Grubin Aff. Young explained that Stamford would like to sell the equipment in order to avoid the storage charges and asked Grubin to call him "as soon as possible" to arrange a time for inspection. Id. If he did not hear from her by December 20, 2001, he would "assume that [she] no longer ha[d] a desire to inspect or test the returned equipment," and Stamford would sell the equipment "as soon thereafter as possible." Id. At the end of the letter, Young again asked Grubin to produce the documentation relating to ES6 that he had requested earlier and that the Court had ordered the Met to produce. See id. Young Aff. ¶ 42.
Grubin responded the next day, refusing to commit to a date for inspection and stating that the Met would inspect the equipment when it could "spare somebody . . . to take the time to make the inspection." 12/14/01 Letter from Grubin to Young, Ex. 14 to Grubin Aff. She also warned Young that sale, transfer or destruction of the ES4 or ES6 equipment "would be in violation of law" because the equipment was the subject of this lawsuit. Id. Young responded a few days later, stating that he had "no desire to destroy or sell evidence relevant to [this] litigation" and would "accommodate a reasonable request" regarding the retention of the ES6 equipment. 12/17/01 Letter from Young to Grubin, Ex. 15 to Grubin Aff. He thought it "entirely unreasonable," however, for Grubin to assert that Stamford should store "all of the equipment until the conclusion of this litigation, as the vast majority of the equipment simply had no evidentiary value." Id. He added that, in order to mitigate damages, he hoped that they could "reach some reasonable stipulation relating to the Schedule #6 equipment so that the vast majority of it can be sold." Id.
In his December 16th letter, Young again asked Grubin to provide the documentation for the ES6 equipment. See id. On December 18, 2001, Grubin provided Stamford with "the invoices and other documents for Equipment Schedule 6." 12/18/01 Letter from Young to Grubin, Ex. D to Plaintiff's First Requests for Admission. Upon receiving these documents, Garcia identified several pieces of ES6 equipment she believed were not returned. See Garcia Aff. ¶ 17.
J. January 10th Mediation Session
The Court ordered the parties into a mediation session, which took place on January 10, 2002. See Grubin Aff. ¶ 16. In a letter sent two days prior to that session, Young set out Stamford's position as to the Met's liability. See 1/8/02 Letter From Young to McDonald ("Young 1/8/02 Ltr."), Ex. 11 to Grubin Aff. Young explained that Stamford could now prove that the equipment that the Met had not returned under ES4 had a total original purchase price of $204,792.85 and that additional items were not in the condition required under Section 6(c) of the Master Lease. See id. "Because the lease could only be terminated with respect to all equipment and because the equipment was not `ready for pickup on the termination date'," he contended, the Met was obligated to pay per diem rent at $3,680 for the 18 months from July 1, 2000 to December 31, 2001 (totalling $2,012,960). See id. (quoting Master Lease ¶ 6 (c)). If the Evergreen Clause were found unenforceable, Young contended, "the Met nonetheless would be liable for a holdover of the lease, by virtue of its failure to return all of the equipment." Id. Thus, the Met would be liable for monthly rent of $36,800 for 18 months, which totaled $662,400. Id. Young further contended that the Met was liable for damages and costs resulting from its return of certain equipment under ES4 in improper condition. See id. With respect to ES6, Young asserted that Stamford was entitled to $38,714 for damaged or unreturned equipment. See id.
Young also calculated the Met's liability if it were only liable for per diem rent for the percentage of the equipment that was not returned. He claimed that the unreturned equipment constituted 24.2% of the total equipment, and that the Met would thus be liable for $487,136.32. See Young 1/8/02 Ltr.
As the Met points out, after the mediation session Stamford provided an expert valuation of the missing equipment under ES4 which was drastically lower that the estimated "Casualty Loss" provided by Dwelle back in November 2001. See Grubin Aff. ¶ 17; 12/13/01 Letter from Fior A. Lostumbo, Stamford's expert witness, to Dwelle, attached to 1/14/02 Letter from Young to McDonald, Ex. 12 to Grubin Aff. Stamford asserts that this discrepancy is due to the fact that the estimated "Casualty Loss" "did not purport to list actual values for the equipment but rather the original costs of such equipment, as to which [Stamford] never claimed an entitlement." Young Aff. ¶ 32; see also Goichman Dep. at 293.
K. The Destruction of ES6 Equipment
Garcia was responsible for issues relating to the storage of equipment. See Garcia Aff. ¶ 22; Goichman Aff. ¶ 43. She arranged for the pickup of the ES6 equipment and for its storage at Startech, where Stamford was storing other equipment. See Garcia Aff. ¶¶ 18, 22. Goichman and Garcia both attest that, at this time, Goichman was not aware that the ES6 equipment was being stored at Startech. See Goichman Aff. ¶ 43; Garcia Aff. ¶ 22.
In October 2001, when the parties first began discussing the issue of the Met inspecting the ES6 equipment, Garcia arranged for Startech to segregate the ES6 equipment from other Stamford equipment. See Garcia Aff. ¶ 23. In November 2001, Startech informed Garcia that it was going out of business and that, if Stamford wanted to retrieve any equipment stored there, it would have to do so immediately. See Garcia Aff. ¶ 18; 2/8/02 Deposition of Maribel Garcia, Ex. 17 to Grubin Aff., at 205; Errata Sheet for Transcript of Deposition of Maribel Garcia, Ex. 17 to Grubin Aff., at 2; Grubin Aff. ¶¶ 27-28. After Garcia and Goichman discussed the issue, Stamford sold all of the equipment stored at Startech to a company in Florida called CPS. See Garcia Aff. ¶ 18; Grubin Aff. ¶ 27. Garcia attests that, at that time, she did not indicate to Goichman that the ES6 equipment was among the equipment being sold to CPS, and that the sale of equipment stored at Startech was not discussed with Dwelle or Young. See Garcia Aff. ¶ 25; see also Dwelle Aff. ¶ 22.
At some point between November 2001 and Goichman's deposition on January 29, 2002, CPS "scrapped" all of the ES6 equipment that it received. Garcia Aff. ¶ 24; see also Grubin Aff. ¶ 26. Nevertheless, at Goichman's deposition, Goichman testified that the Met was still welcome to inspect the equipment and Young communicated Stamford's continued willingness to permit such an inspection. See Goichman Dep. at 262, 277.
Garcia attests that she first learned that CPS had scrapped the ES6 equipment shortly after Goichman's deposition, when she inquired about its availability for inspection. See Garcia Aff. ¶ 24. Having learned of this destruction, she informed Young and Dwelle on February 6, 2002, and they in turn informed Goichman. See Dwelle Aff. ¶ 22; Young Aff. ¶ 46. Goichman attests that, at the time of his deposition, he did not know that the ES6 equipment was stored at Startech, let alone that it was included in the equipment transferred to and destroyed by CPS. See Goichman Aff. ¶ 43. As soon as he was informed of the equipment's destruction, however, he instructed Young to communicate this information to the Met and to inform them that his testimony had been erroneous. See id. ¶ 44; Young Aff. ¶ 27. On February 7, 2002, Young called and wrote to McDonald to convey this information. See Young Aff. ¶ 47; Grubin Aff. ¶ 26; 2/7/02 Letter from Young to McDonald, Ex. 16 to Grubin Aff. Goichman also corrected his testimony on his errata sheet. See Young Aff. ¶ 47; Goichman Aff. ¶ 44; Errata Sheet for Goichman Dep., Ex. S to Grubin Tr., at 1.
L. Sanctions Motion and Dismissal of the Action
On March 5, 2002, during an unrecorded conference, Young requested leave to file a second amended complaint and the Court denied his request. See 3/11/02 Letter from Young to the Court (acknowledging Court's oral ruling). On March 25, 2002, the Met served a motion for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure, 28 U.S.C. § 1927 and the Court's inherent powers. See Def. Mem. at 1. On April 9, 2002, Stamford moved to dismiss its complaint with prejudice pursuant to Rule 41(a)(2) of the Federal Rules of Procedure. See Plaintiff's Motion to Dismiss. At an in-person conference held on April 17, 2002, the Met informed the Court that it would pursue its motion for sanctions even if the case was withdrawn. See 4/17/02 Tr. at 5. That same day, the Met re-filed its motion for sanctions omitting its earlier Rule 11 claim. See Notice of Motion. At the April 17th conference, the Court offered Stamford a few days to consider whether it still wished to withdraw the action. See 4/17/02 Tr. at 23. Stamford ultimately decided to withdraw the case and, on April 24, 2002, the Court granted Stamford's motion to dismiss the action with prejudice. See 4/24/02 Endorsement on Plaintiff's Motion to Dismiss.
II. LEGAL STANDARD
"A court has the inherent power to supervise and control its own proceedings and to sanction counsel or a litigant for bad-faith conduct or for disobeying a court's orders." Mickle v. Smith, ___ F.3d ___, No. 01-7308, 2002 WL 1583885 (2d Cir. July 18, 2002) (no page numbers available). This "inherent power to sanction derives from the fact that courts are `vested, by their very creation, with power to impose silence, respect, and decorum in their presence, and submission to their lawful mandates.'" Schlaifer Nance Co., Inc. v. Estate of Warhol, 194 F.3d 323, 336 (2d Cir. 1999) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991)). "This power may likewise be exercised where the party or the attorney ha[s] `acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" Revson v. Cinque Cinque, P.C., 221 F.3d 71, 78 (2d Cir. 2000) (quoting Alyeska Pipeline Svc. Co. v. Wilderness Soc'y, 421 U.S. 240, 258-69 (1975)). The court may order sanctions pursuant to its inherent power even if there are procedural rules, such as Rule 11, that sanction the same conduct. See Chambers, 501 U.S. at 48.
"When a district court invokes its inherent power to impose attorneys' fees or punish behavior by an attorney in "the actions that led to the lawsuit . . . [or] conduct of the litigation, which actions are taken on behalf of a client, the district court must make an explicit finding of bad faith." Seltzer, 227 F.3d at 41-42 (quoting Hall v. Cole, 412 U.S. 1, 15 (1973)). In such a case, a district court may only impose sanctions pursuant to its inherent power if it finds that: (1) the challenged action was "without a colorable basis," and (2) this action was taken "for reasons of harassment or delay or for other improper purposes." Schlaifer Nance Co., 194 F.3d at 336 (citations omitted); see also Revson, 221 F.3d at 79 (quotation marks omitted). These conclusions "must be based on `clear evidence' and must be accompanied by a "high degree of specificity in the factual findings . . ." ." Mickle, 2002 WL 1583885 (no page numbers available) (quoting Oliveri, 803 F.2d at 1272).
In United States v. Seltzer, 227 F.3d 36, 40 (2d Cir. 2000), the Second Circuit held that bad faith is a prerequisite for imposition of sanctions where the sanctioned conduct is "of the sort that is normally part of the attorney's legitimate efforts at zealous advocacy for the client." "But, when the district court invokes its inherent power to sanction misconduct by an attorney that involved that attorney's violation of a court order or other misconduct that is not undertaken for the client's benefit, the district court need not find bad faith before imposing a sanction under its inherent power." Id. at 42. In this case, the Met claims that Stamford's counsel should be sanctioned for conduct undertaken as part of counsel's role in representing his client, and does not allege actions involving counsel's "negligent or reckless failure to perform his or her responsibility as an officer of the court." Id. Indeed, the Met admits that a showing of bad faith is required in this case. See Def. Mem. at 2.
Section 1927 provides that a court may impose sanctions on an attorney who "so multiplies the proceedings in any case unreasonably and vexatiously." 28 U.S.C. § 1927. While this basis for imposing sanctions is "[s]eparate and distinct from a court's inherent power to supervise and control its own proceedings, "[t]he Court of Appeals for the Second Circuit has interpreted this provision to require the same findings as those required under the court's inherent powers to supervise and control its own proceedings." Fowler v. New York Transit Authority, No. 96 Civ. 6796, 2001 WL 83228, at *16 (S.D.N.Y. Jan. 31, 2001) (citing Eisemann v. Greene, 204 F.3d 393, 396 (2d Cir. 2000)). Thus, "`[b]ad faith is the touchstone of an award under this statute.'" Revson, 221 F.3d at 79 (quoting United States v. International Bhd. of Teamsters, 948 F.2d 1338, 1345 (2d Cir. 1991)). "`Like an award made pursuant to the court's inherent power, 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'." Id. (quoting Oliveri v. Thompson, 803 F.2d at 1273).
"[T]he only meaningful difference between an award made under § 1927 and one made pursuant to the court's inherent power is . . . that awards under § 1927 are made only against attorneys or other persons authorized to practice before the courts while an award made under the court's inherent power may be made against an attorney, a party, or both." Oliveri, 803 F.2d at 1273; see also Fowler, 2001 WL 83228, at *16. Ultimately, the decision whether to award sanctions pursuant to either authority is a matter left to the court's discretion. See Chambers, 501 U.S. at 55 (sanctions under court's inherent powers); United States ex rel. Evergreen Pipeline Constr. Co. v. Merritt Meridian Constr. Corp., 95 F.3d 153, 171 (2d Cir. 1996) (sanctions under 28 U.S.C. § 1927).
III. DISCUSSION
The Met claims that Stamford acted in "bad faith" because its claims "never had legal validity or evidentiary support, but were filed and have been pursued to this day for the improper purpose of extracting money from the Met in `settlement' that Stamford knew was not owed." Def. Mem. at 2. It asks this Court to impose sanctions on Stamford and its counsel for a variety of conduct, including assertion of jurisdiction without sufficient inquiry, bringing claims without a reasonable factual or legal basis, destruction of evidence, lying under oath, and duplicative pleading. Each of these allegations will be addressed in turn.
A. Assertion of Jurisdiction in Connecticut
The Met asks this Court to impose sanctions on Stamford for alleging jurisdiction in Connecticut without reasonable inquiry. See Def. Mem. at 8. Before signing and filing a complaint, an attorney is required to determine "at a minimum whether the district court ha[s] jurisdiction." Gutierez v. Fox, 141 F.3d 425, 425 (2d Cir. 1998). "If an attorney alleges jurisdiction when reasonable inquiry would show that it did not exist, he may be held liable for sanctions substantial in amount." Id.
As an initial matter, the Met has offered no support for its contention that this Court could issue sanctions for improper assertion of jurisdiction in another district. But, while the question of this Court's authority to issue sanctions is an important one, the issue need not be resolved here because I would decline to impose sanctions even if I had the authority to do so.
The Met does, however, offer support for its position that a federal court may impose sanctions based upon a complaint filed in state court where, after removal, the plaintiff continued to advocate the claims in that complaint. See Def. Mem. at 8 n. 4 (citing, e.g., Fed.R.Civ.P. 11, Advisory Committee Notes (1993 Amendment); Buster v. Greisen, 104 F.3d 1186, 1190 n. 4 (9th Cir. 1997)).
Connecticut's long-arm statute provides that jurisdiction may be established over a foreign corporation where a cause of action arises out of a contract that was "made" or was "to be performed in" Connecticut. Conn. Gen. Stat. § 33-929(f)(1). Pursuant to section 33-929 (f), there needs to be "a nexus between the cause of action alleged and the conduct of the defendant within the state," but there need not be "a causal connection between the plaintiff's cause of action and the defendant's presence in the state." Tomra of N. Am., Inc. v. Envtl. Prods. Corp., 4 F. Supp.2d 90, 93 (D. Conn. 1998) (internal citations omitted). Performance of the contract in Connecticut by either party may give rise to jurisdiction over the defendant. See Chemical Trading, Inc. v. Manufacture de Produits Chimiques de Tournan, 870 F. Supp. 21, 24 (D. Conn. 1994). Stamford asserts that it believed jurisdiction would lie under section 33-929(f) because the Met acknowledged and agreed to the assignment of the Leases to Stamford, a Connecticut Corporation. See Pl. Opp. at 6; see also 5/1/00 Letter Agreement. Thus, Stamford argues, "the Met was aware that all future activities with respect to the lease would be performed by [Stamford] in Connecticut and that it would have to provide all notices and make all payments to [Stamford] in Connecticut." Id.
The other long-arm provision relied on by Stamford, section 1219(f), contains identical language.
The issue here is not whether these alleged facts, if true, would be sufficient to sustain jurisdiction in Connecticut. See Succession Picasso v. Spedding, No. 96 Civ. 4546, 1997 WL 107462, at *2 (S.D.N.Y. Mar. 10, 1997). The question is simply whether, by filing this lawsuit in Connecticut, Stamford acted in bad faith. See id. Because the Met has identified no facts that would merit such a finding, I decline to impose sanctions based on Stamford's assertion of jurisdiction in Connecticut.
B. Claim for Breach Regarding ES4 Equipment
The Met contends that all of Stamford's theories underlying Count I were made in bad faith.
1. The Met's Alleged Failure to Pay Rent as Required by the Evergreen Clause
First, the Met argues that Stamford should be sanctioned for bringing a claim under the Evergreen Clause because it knew that this clause was unenforceable under Section 5-901 of N.Y. General Obligations Law and "knowingly ignored" that law. Def. Mem. at 10. Section 5-901 states:
No provision of a lease of any personal property which states that the term thereof shall be deemed renewed for a specified additional period unless the lessee gives notice to the lessor of his intention to release the property at the expiration of such term, shall be operative unless the lessor, at least fifteen days and not more than thirty days previous to the time specified for the furnishing of such notice to him, shall give to the lessee written notice, served personally or by mail, calling the attention of the lessee to the existence of such provision in the lease. Nothing herein contained shall be construed to apply to a contract in which the automatic renewal period specified is one month or less.
N.Y. General Obligations Law § 5-901. Because neither Stamford nor Paramount provided the Met with the notice required under section 5-901, the Met argues, "plaintiff's claim when brought was not warranted by existing law or by a nonfrivolous argument for a change of law." Def. Mem. at 10.
Young attests that, once he was made aware of section 5-901 by Grubin's August 15th letter, he "reviewed this statute and all relevant case law citing it or § 5-903 and § 5-905, almost identically worded statutes applicable in other contexts." Young Aff. ¶ 5 (emphasis in original). As Young points out, some courts have held that section 5-905, which governs the lease of real property, is not applicable where the lessee improperly maintains possession of the leased property after expiration of the initial term. See Farmingville Assoc., 1996 WL 529312 at *6 (holding that section 5-905 does not apply to a "hold-over" lessee who "fails to manifest his intent not to be bound to any additional term" by both failing to give notice of an intention to quit and remaining in possession after lease expiration); Malone Assoc. v. Grand Union Co., 671 N.Y.S.2d 861, 862 (3d Dep't 1998) (holding that section 5-905 was "of no consequence to [a lessee] by virtue of the latter's election to hold over"). Thus, he argues, there is case law, albeit by analogy, suggesting that section 5-901 does not void the Evergreen Clause if it is shown that the Met "improperly maintained possession" of the ES4 equipment after expiration of the initial lease term. See Young Aff. ¶ 5.
Section 5-905 states:
No provision of a lease of any real property or premises which states that the term thereof shall be deemed renewed for a specified additional period of time unless the tenant gives notice to the lessor of his intention to quit the premises at the expiration of such term shall be operative unless the lessor, at least fifteen days and not more than thirty days previous to the time specified for the furnishing of such notice to him, shall give to the tenant written notice, served personally or by registered or certified mail, calling the attention of the tenant to the existence of such provision in the lease.
N.Y. General Obligations Law § 5-905. Section 5-905 voids lease clauses in which automatic renewals are triggered by a tenant's failure to give notice of its intention to quit at the expiration of the term. See Farmingville Assoc. v. First Nat'l Supermarkets, Inc., No. 93 Civ. 4683, 1996 WL 529312, at *6 (S.D.N.Y. Aug. 1, 1996).
The Met insists that the "the entire legal theory of Stamford's case is dead wrong" and "their pleading that theory was, at the very least, reckless." Reply Memorandum of Defendant Metropolitan Opera Association in Support of Its Motion for Sanctions ("Def. Repl.") at 5. It claims that "it has been settled law in New York for at least a century and a half that, while a holdover of a real property lease effectuated a lease renewal, the opposite is the case with a personal property lease." Id. at 4. To support this assertion, the Met cites case law holding that a holdover of personal property does not automatically renew a lease but merely creates a bailment. See Def. Repl. at 4-5 (citing Chamberlain v. Pratt, 33 N.Y. 47, 50 (1865); Howes v. Peckham Rd. Corp., 221 N.Y.S.2d 221, 222 (3d Dep't 1961); Hood Farm, Inc. v. Roberts, 5 N.Y.S.2d 513, 515 (3d Dep't 1938)).
Notably, none of the cases cited by the Met even mention the statute at issue — N.Y. General Obligations Law § 5-901 — let alone its effect on an automatic renewal clause like the Evergreen Clause. But, in deciding a motion for sanctions, I need not and do not reach the merits of the legal issues. I need only determine whether Stamford's claim was both "without colorable basis" and made only for "improper purposes." Schlaifer Nance Co., 194 F.3d at 336; Revson, 221 F.3d at 79. "A claim is colorable `when it has some legal and factual support, considered in light of the reasonable beliefs of the individual making the claim.'" Revson, 221 F.3d at 79 (quoting Nemeroff v. Abelson, 620 F.2d 339, 348 (2d Cir. 1980) (per curiam)). Here, Stamford clearly had "some" legal basis for pursuing its claim. Revson, 221 F.3d at 79. And, even if Stamford's argument is undermined by the cases cited by the Met, "being wrong is not synonymous with acting in bad faith." Succession Picasso, 1997 WL 107462, at *2. Accordingly, the Met's request for sanctions based on this claim is denied.
2. The Met's Alleged Failure to Maintain Maintenance Contracts on ES4 Equipment
The Met insists that Stamford should be sanctioned because it had no factual or legal basis for asserting that the Met failed to maintain maintenance contracts on the ES4 equipment. See Def. Mem. at 11-12. It argues, first, that Stamford and its counsel should be sanctioned for not "having made any inquiry whatsoever of the Met" as to whether it maintained maintenance contracts for the ES4 equipment before filing its complaint. Id. at 11 (emphasis in original). In response, Stamford explains that the Met's assertion that some of the ES4 equipment had been packed away a year before the termination date indicated that "it was unlikely to have maintained maintenance contracts on such equipment." Pl. Opp. at 13. In addition, Young knew from his client that Stamford itself had no documents indicating that the Met maintained such contracts.
A court may invoke section 1927 or its inherent power to sanction a party that files a pleading without a "reasonable inquiry" into the viability of that pleading. See Howard v. Klynveld Peat Marwick Goerdeler, 977 F. Supp. 654, 666 (S.D.N.Y. 1997) (considering, but denying, imposition of sanctions under section 1927 or court's inherent powers); NASCO, Inc. v. Calcasieu Television and Radio, Inc., 124 F.R.D. 120, 143 (W.D. La. Jan. 23, 1989), aff'd, 894 F.2d 696 (5th Cir. 1990), aff'd, 501 U.S. 32 (1991) (invoking court's inherent power to impose costs and attorneys' fees against party that filed pleadings which both the client and his attorneys knew to be false at time they were filed). The test for reasonableness is an objective one: After reasonable inquiry, could a competent attorney form a reasonable belief that the pleading is well grounded in fact and law? See Eastway Const. Corp. v. City of New York, 762 F.2d 243, 253 (2d Cir. 1985); Howard, 977 F. Supp. at 666. However, any doubts as to whether a pleading is based on reasonable inquiry "must be resolved in favor of the signer." Eastway Const. Corp., 762 F.2d at 253.
The crux of the Met's argument is that Young did not ask the Met if maintenance contracts existed prior to filing its complaint. But a "reasonable inquiry" does not necessarily include questioning an adversary. Cf. Revson, 221 F.3d at 79 (holding that whether a claim is "colorable" should be determined "in light of the reasonable beliefs of the individual making the claim"). Moreover, the fact that the Met was never able to produce actual maintenance contracts, see supra Part II.H., suggests that Stamford's claim was not "so completely without merit as to require the conclusion that [it was made] for some improper purpose such as delay." Revson, 221 F.3d at 79. Accordingly, Stamford's assertion of this claim in its complaint was not sanctionable conduct.
Alternatively, the Met argues, Stamford should be sanctioned for repeating the allegation regarding maintenance contracts in its Amended Complaint because, by that time, "Stamford and its counsel actually knew that the Met in fact had maintenance contracts." Def. Mem. at 12 (emphasis in original). This contention is unfounded because when the Amended Complaint was filed on October 8, 2001, Stamford had no evidence that the Met maintained such contracts; it only had Grubin's promise to produce those contracts. Indeed, it was not until October 15th that the Met produced bills that purportedly related to maintenance contracts and, despite the Court's order, the Met never produced actual maintenance contracts.
Finally, the Met argues that "even if the Met had failed to have maintenance contract in place, such failure could not have been a breach of the lease as a matter of law, and to plead it as such was sanctionable conduct." Id. As the Met points out, Paragraph 12 of the Master Lease lists five circumstances where the Met would be deemed to "be in default" and in "breach of this Agreement." Master Lease ¶ 12. The Met asserts that the only subsection of Paragraph 12 that "could conceivably apply to any failure to maintain maintenance contracts" is subparagraph (c) which states that a breach occurs when the lessee fails "to observe or perform any of the other obligations required to be observed or performed by the lessee hereinunder [other than failure to pay rent or an attempt to transfer or encumber the equipment], and such failure shall continue uncured for ten (10) days after written notice thereof to the Lessee by Lessor." Def. Mem. at 12 (quoting Master Lease ¶ 12(c)) (emphasis added). Because neither Paramount nor Stamford gave the Met notice relating to maintenance contracts, the Met argues, "nothing about maintenance contracts could give rise to a claim for breach of the lease." Id.
As Stamford points out, the Master Lease contains no language explicitly stating that breach only occurs under the five circumstances listed in Paragraph 12. Moreover, Paragraph 12 itself states that "[t]he rights afforded Lessor under this Paragraph shall not be deemed to be exclusive, but shall be in addition to any rights or remedies provided by law." Master Lease ¶ 12; see also Pl. Opp. at 15 n. 14. Because this language provides a reasonable legal basis for Stamford's claim, sanctions are not warranted.
The Met maintains that it is "beyond cavil" that the non-exclusive language in Paragraph 12 refers only to "remedies for default, not to the identification of events of default." Def. Repl. at 6. Given that the sentence regarding non-exclusivity uses the term "rights or remedies," it is unlikely that it was only meant to pertain to "remedies" and not to claims.
3. The Met's Alleged Failure to Return ES4 Equipment
The Met's next contention is that Stamford acted in bad faith by alleging that the Met failed to return the ES4 equipment in the manner required by the Master Lease. See Def. Mem. at 13-22. Specifically, it complains about: (1) Stamford's reluctance to pick up the ES4 equipment; (2) Stamford's insistence that it did not know what portion of the ES4 financing was spent on non-equipment; (3) Stamford's claim that it was entitled to unreturned software; and (4) Stamford's claim to per diem rent for damaged equipment.
The Met's claim that Stamford erroneously claimed entitlement to "walls, wiring, carpeting and other infrastructure" after it was shown a letter indicating that these items were not required to be returned is simply not true. Once Stamford was made aware of the letter in which Paramount agreed that it would not make future claims to network wiring and box office equipment, it never again contended that it was entitled to the return of these items. See supra Part II.I.
a. Reluctance to Pick Up ES4 Equipment
The Met insists that Stamford should be sanctioned for "refusing to allow return of the equipment, then suing for its not having been returned." Def. Mem. at 14. It is undisputed, however, that on the termination date of ES4, the Met had neither served notice of termination nor notified Stamford that the ES4 equipment was ready for return. The Met only informed Stamford that the equipment was allegedly ready for return when it received invoices for future rental payments, which occurred after the termination date. No doubt, there was much unnecessary wrangling between the parties about setting a firm date for Stamford to pick up the ES4 equipment. Like many disagreements between these parties, no compromise was reached and no action taken until it was so-ordered by the Court. However, all of this bickering is irrelevant to the question at hand — namely, did Stamford act in bad faith when it alleged that the Met failed to timely return the equipment? Because the equipment was not returned, or even made available for return, on the termination date, Stamford had a colorable basis for making this allegation.
While Stamford had a reasonable basis for alleging that the ES4 equipment was not timely returned, its reluctance to actually pick up the equipment once the Met made it available might have undermined its claim for damages.
b. Alleged Ignorance of Items Paid for with ES4 Financing
The Met also criticizes Stamford for continuing to insist that it did not know what portion of the ES4 financing was spent on equipment after Stamford provided it with payroll records and other documents substantiating its payments for non-equipment. The Met asserts that it provided Stamford with documents that show "exactly" what amount of the ES4 financing was spent for non-equipment items. See Def. Mem. at 18. However, the Met did not provide Stamford with documents connecting its spreadsheet and payroll records to the ES4 financing. See supra Part II.F. In light of the Met's inability to link the ES4 financing to these expenditures, Stamford did not act in bad faith when it asserted that it was not exactly sure what amount of the ES4 financing had been spent on non-equipment. See Pl. Opp. at 17. Moreover, once the Met finally produced the documents (upon the Court's orders), Stamford indicated to the Met that it would not claim entitlement to the funds spent on non-equipment. Accordingly, I decline to sanction Stamford for seeking clarification of the items purchased with ES4 financing.
c. Unreturned Software
The Met's next contention is that Stamford's claim regarding unreturned software was completely without merit because Stamford knew it had no right to these items. See Def. Mem. at 15-19. Stamford admits that the Purchase Agreement between Paramount and Stamford specifically excluded the transfer of software rights to Stamford. See Pl. Opp. at 16. It insists, however, that the Met cannot enforce this restrictive provision because it was a stranger to that contract rather than a third-party beneficiary. See id. at 16-17. In support of this position, Stamford cites cases holding that only a third-party beneficiary may enforce provisions of a contract between other parties, and that the intentions of the contracting parties determines who is a third-party beneficiary. See id. (citing MK West Street Co. v. Meridien Hotels, Inc., 584 N.Y.S.2d 310, 312 (1st Dep't 1992); Stainless, Inc. v. Employers Fire Ins. Co., 418 N.Y.S.2d 76, 90 (1st Dep't 1979), aff'd, 49 N.Y.2d 924 (1980)). It argues that, because the provision regarding software was intended to "protect Paramount," not the Met, the Met has no standing to enforce that provision. Id. at 16. Even if Stamford's argument is somewhat tenuous, that does not equate to "frivolousness" or "bad faith." Cantor Fitzgerald, L.P. v. Peaslee, No. 94 Civ. 9184, 1995 WL 606347, at *1 (S.D.N.Y. Oct. 16, 1995) (holding that argument that was "unavailing" was not necessarily "frivolous" or "made in bad faith"). Accordingly, it would not be appropriate to sanction Stamford for asserting this claim. See id. at *1-*2.
According to Stamford, the provision was inserted in order to "protect Paramount from a claim by [Stamford] that [Stamford] had rights to software that Paramount was legally unable to convey due to licencing restrictions." Pl. Opp. at 16.
d. Per Diem Rent for Damaged Equipment
Finally, the Met argues that there was no legal basis for Stamford's claim to per diem rent and "Stamford and its counsel should be sanctioned for pursuing a remedy that is clearly not available as a matter of law." Def. Mem. at 21-22 (emphasis in original). The Met explains that, pursuant to Paragraph 11 of the lease, it was required to repair or replace any damaged or destroyed equipment. See id. at 20 (citing Master Lease ¶ 11). Accordingly, the Met argues, there is no legal basis for Stamford's claim that the return of damaged equipment constitutes a breach of the lease entitling it to per diem rent under Paragraph 6(c). See id. The problem with the Met's argument, however, is that it is not clear that Paragraph 11 pertains to equipment that has been returned. The only provision of the Master Lease that specifically refers to the return of equipment upon termination of the lease is Paragraph 6(c), and that provision explicitly requires that all equipment be returned "in good operating order, repair, condition and appearance." Master Lease ¶ 6 (c). Because it is not clear that the Master Lease precludes Stamford's claim, sanctions are not warranted.
C. Allegations of Missing or Damaged ES6 Equipment
The Met argues that Stamford and its counsel should be sanctioned for their "vexatious behavior" between the time the ES6 equipment was returned and the destruction of that equipment. Def. Mem. at 24-27. It complains that when Dwelle warned Grubin that Stamford might amend its complaint if the Met refused to provide documents showing what equipment was purchased with ES6 financing, Stamford was "threaten[ing] baseless litigation." Id. at 25. Then, because Stamford admitted that it had "no way of knowing that all of the Equipment ha[d] been returned," Stamford should not have asserted in the Amended Complaint that some ES6 equipment was damaged or missing. Id. at 26 (quoting 5/25/01 Letter from Dwelle to Grubin). Moreover, the Met claims, Stamford "severely harassed the Met" and "multiplied proceedings" by "constantly changing" its position regarding the extent of missing or damaged equipment. Id.
A brief review of the undisputed facts clearly shows that Stamford's allegations regarding missing or damaged ES6 equipment were neither "vexatious" nor sanctionable. In early April, 2001, a few days after the ES6 equipment was returned, Garcia asked Grubin to provide Stamford with an itemized list of equipment purchased with the ES6 financing so that Stamford could check that all equipment had been returned. On April 25th, when no list or other documentation had been provided, Dwelle repeated the request for documentation itemizing the ES6 equipment. Dwelle noted Stamford's position that the Master Lease required the Met to provide such documentation, and Grubin disagreed. Grubin blamed Stamford for its "negligent record-keeping" and vehemently refused to provide Stamford with the documents she admitted having in her possession. Grubin 5/5/01 Ltr. Indeed, the Met did not make such documents available to Stamford until two months after the Court ordered it to do so. Prior to receiving the requested documentation from the Met, Stamford mistakenly listed as missing certain items that Startech had in fact misplaced. But, upon receiving the supporting documents from the Met, Stamford firmly established what ES6 equipment it believed to be missing.
As these undisputed facts show, much of the multiplicity and delay of which the Met complains could have been avoided if the Met had simply provided Stamford with the documentation needed to properly inventory the ES6 equipment. Accordingly, sanctions are not warranted.
D. The Destruction of ES6 Equipment
The Met seeks sanctions against Stamford for "transferring all the [ES6] equipment to a third party, intentionally sending it away and allowing its destruction." Def. Mem. at 24. A court may exercise its inherent powers to impose sanctions on a litigant for spoliation or destruction of evidence. See Rutgerswerke AG v. Abex Corp., No. 93 Civ. 2914, 2002 WL 1203836, at *12 (S.D.N.Y. June 4, 2002); Telecom Intern. America, Ltd. v. ATT Corp., 189 F.R.D. 76, 81 (S.D.N.Y. 1999); Skeete v. McKinsey Co., Inc., No. 91 Civ. 8093, 1993 WL 256659, at *3 (S.D.N.Y. July 7, 1993). When determining whether sanctions are warranted, a court must first ask whether the party against whom sanctions are sought had an obligation to preserve the evidence that was destroyed. See Rutgerswerke AG, 2002 WL 1203836, at *12; Indemnity Insur. Co. of North Amer. v. Liebert Corp. No. 96 Civ. 6675, 1998 WL 363834, at *3 (S.D.N.Y. June 29, 1998). The duty to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation. See Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 435 (2d Cir. 2001), cert. denied, 122 S.Ct. 206 (2001); Kronisch v. United States, 150 F.3d 112, 126 (2d Cir. 1998). If a court finds that a party was under a duty to preserve the evidence, it must then consider: (1) the degree of fault of the party who destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) the appropriate sanction, if any. See Rutgerswerke, 2002 WL 1203836, at *14; Indemnity Insur. Co. of North Amer., 1998 WL 363834, at *3. In the appropriate case, a court may award costs, including attorneys' fees, incurred by the party deprived of the destroyed evidence. See Monaghan v. SZS 33 Associates, L.P., 148 F.R.D. 500, 511 (S.D.N.Y. 1993) (awarding plaintiff "all reasonable costs, including attorneys' fees" she incurred bringing and defending again relevant motions as sanction for defendant's grossly negligent noncompliance with discovery orders); Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 78 (S.D.N.Y. 1991) (awarding costs, including attorneys' fees, where defendant's reckless conduct resulted in loss of records and discovery responses misled the court and opposing counsel). But a district court has broad discretion to determine the appropriate sanction for destruction of evidence, and that determination must be made on a case-by-case basis. See Fujitsu, 247 F.3d at 435; West v. Goodyear Tire Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999); United States v. Grammatikos, 633 F.2d 1013, 1019-20 (2d Cir. 1980).
Because Stamford made the ES6 equipment a subject of its complaint, it clearly knew that the equipment was relevant to this litigation. Therefore, at the time the equipment was destroyed, Stamford had a firm obligation to preserve it. See Fujitsu, 247 F.3d at 435. There is no justification for sanctions, however, because the Met has proffered no evidence that the equipment was destroyed willfully or that the Met was prejudiced by its destruction.
The evidence proffered by the parties indicates that no one at Stamford knew that SCS was going to destroy the equipment. In addition, Goichman attests that he "never would have authorized th[e] sale [of equipment to SCC] knowingly" had he known that the ES6 equipment was included among the items stored at Startech. Goichman Aff. ¶ 43. Indeed, this assertion is buttressed by the fact that Goichman had earlier authorized the continued expenditure of storage fees to ensure that the equipment would be available for inspection. See id. ¶ 41; 12/13/01 Letter from Young to Grubin; 12/17/01 Letter from Young to Grubin. Because the Met has proffered no evidence to rebut these assertions, or that Goichman, Young, Garcia or Dwelle set about purposely to destroy evidence, I find that the destruction of the ES6 equipment was "a negligent act, not a willful one." Valentine v. Mercedes-Benz Credit Corp., No. 98 Civ. 1815, 1999 WL 787657, at *4 (S.D.N.Y. Sept. 30, 1999) (refusing to dismiss complaint as sanction for negligent destruction of evidence).
Nor has the Met shown that it was prejudiced by the destruction of the ES6 equipment. Courts have refused to impose sanctions for destruction of evidence where the moving party was given the opportunity to inspect the evidence prior to its destruction. See Sterbenz v. Attina, 205 F. Supp.2d 65, 73 (E.D.N.Y. 2002); Indemnity Ins. Co., 1998 WL 363834, at *3-*4; Thiele v. Oddy's Auto and Marine, Inc., 906 F. Supp. 158, 160 (W.D.N.Y. 1995). Here, Stamford invited the Met on numerous occasions to inspect the ES6 equipment; and Garcia arranged to have that equipment set aside at the Startech storage facility for just this purpose. Yet, the Met never inspected the equipment and even refused to commit to a date for inspection. Thus, it cannot now complain that it was prejudiced by the equipments' destruction.
Moreover, a party cannot claim prejudice if it fails to show that the destroyed evidence would have been relevant to the outcome of the dispute. See Barsoum v. NYC Hous. Authority, 202 F.R.D. 396, 400 (S.D.N.Y. 2001). Because Stamford withdrew its complaint before the Met made any substantive motions, the Met was never deprived of any meaningful evidence in this case. For this reason, as well as those stated above, I decline the Met's request for sanctions for destruction of the ES6 equipment.
E. Allegation of Lying Under Oath
The Met next contends that sanctions are warranted because Goichman "lied under oath" about the availability of the ES6 equipment. Def. Mem. at 24. While this Court may invoke its inherent powers or section 1927 to impose sanctions when persons knowingly lie under oath, see, e.g., Mackler Productions, Inc. v. Cohen, 225 F.3d 136, 144 (2d Cir. 2000) (upholding sanctions against attorney who allowed client to lie under oath); Quela v. Payco-Gen. Am. Credits, Inc., 82 F.E.P. Cases 1878 (N.D. Ill. 2000) (imposing sanctions for false deposition testimony); In re Smyth, 242 B.R. 352, 361 (W.D. Tex. 1999) (finding sanctions appropriate for lying to bankruptcy court), the Met has proffered no evidence that this occurred here. At Goichman's deposition, both Goichman and Young indicated that the ES6 equipment was still available for inspection. While this assertion proved to be incorrect, Stamford immediately informed the Met of the mistake. Because the Met has proffered no evidence that Goichman or Young's assertions were intentional lies, rather than mistakes, sanctions are not appropriate.
F. Alleging Breach of Covenant of Good Faith and Fair Dealing in a Separate Count
The Met further argues that Stamford acted in bad faith when it alleged breach of the covenant of good faith and fair dealing in a separate count from its breach of contract claim. See Def. Mem. at 27. The Met notes, and Stamford concedes, that under New York Law a claim for breach of an implied covenant may be dismissed as duplicative if it is based on the same conduct as the claim for breach. See id. Pl. Opp. at 27. The Met, however, has proffered no evidence that this deficient pleading was the result of bad faith. Nor does Stamford's non-prejudicial, duplicative pleading itself evidence bad faith. See Anonymous v. Goddard Riverside Community Center, Inc., 96 Civ. 9198, 1997 WL 475165, at *4 (S.D.N.Y. July 18, 1997) (holding that a complaint "replete with pleading deficiencies . . . [was] not so egregious to be sanctionable" where there was no other evidence of bad faith). Accordingly, sanctions are not warranted for the pleading of a duplicative claim.
The Met could have raised this issue earlier by informally asking Stamford to delete it or moving to dismiss the duplicative claim; but it never did so. See Pl. Opp. at 27 n. 27.
G. Continued Pursuit of Litigation
As explained above, the Met has identified several instances where Stamford made mistakes based on less than thorough investigation or preparation, quibbled over technicalities or advanced tenuous legal positions. But it has not proven that any single one of these actions was both without a colorable basis and taken in bad faith. Examining Stamford's conduct in its entirety, however, the Met has shown that it was victimized and that limited sanctions are warranted.
Over more than two years of litigation, Stamford saw that its case was collapsing, but it nevertheless insisted on pursuing litigation, making several attempts to reshape its claims to cover what little wrongdoing it could uncover. The transparent goal of this continuing effort was to extract a settlement by wearing down the adversary with continually mounting costs. While Stamford eventually withdrew the case in its entirety, it only did so after most of its claims had been undermined and when a sanctions motion was upon it. Stamford insists that its last minute withdrawal was based on its good faith belief that its claims were still meritorious but that "likely recovery might not justify the significant expenditure of time, attorneys' fees, and other expenses" associated with summary judgment, a sanctions motion, securing witnesses, and trying the case. Pl. Sur-Repl. at 1. But, I do not credit Stamford's tardy concern about expenses. More likely, Stamford finally withdrew its case because it was beaten — and continuing to press its now meritless claims would have warranted Rule 11 sanctions against both attorney and client.
"Litigants and their lawyers are under a continuing duty to correct or withdraw litigation positions based on matters that subsequently come to their attention." Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse 438 (3d ed. 2000). Sanctions may be imposed for improper "continuance of the litigation," even if commencement and the initial pursuit of those claims was not sanctionable conduct. Ford v. Temple Hosp., 790 F.2d 342, 350 (3d Cir. 1986) (imposing sanctions for "continuance of the litigation" when opponent's brief made it clear that claim was procedurally barred, though denying sanctions for commencement of claim); see also Christiansburg Garment Co. v. Equal Employment Opportunity Commission, 434 U.S. 412, 422 (1978) (holding that a plaintiff may be assessed its opponent's attorney's fees if "plaintiff continued to litigate" after its claim became "unreasonable, or groundless"). In this case, Stamford and its attorneys should have reevaluated the merits of their case much earlier than they did, and withdrawn it at that time. Their decision to continue to press what had become a meritless case was not only improper, but was done in bad faith. Stamford could only recoup the cost of litigation that eventually proved unwinnable by using (and abusing) the judicial system to extract a settlement to which it was not entitled. Such an "improper purpose" — harassment and extortion — clearly amounts to bad faith. Eisemann v. Greene, 204 F.3d 393, 396 (2d Cir. 2000). The fact that Stamford belatedly withdrew the case may have stemmed the flow of legal fees; but it does not eliminate the fact that its continued pursuit of this litigation was done in bad faith.
Because I find that Stamford continued to press its case after it learned that it could not prevail, and that this was done in bad faith, a limited sanction against both Stamford and its attorneys is warranted. Inherent power sanctions are essentially "punitive in nature," not compensatory. Byrne v. Nezhat, 261 F.3d 1075, 1131 n. 110 (11th Cir. 2001); Pearson v. First NH Mortg. Corp., 200 F.3d 30 (1st Cir. 1999) (holding that an inherent powers sanction "should be determined with a view to its deterrent value, not necessarily limited to the harm caused litigants"). Such sanctions are designed to redress misuse of the judicial process by penalizing bad faith litigation conduct. See Byrne, 261 F.3d at 1131 n. 110. However, because sanctions are intended both to penalize a particular party's improper conduct and "to deter future violations by other parties," they "do not have to be strictly proportional to the severity of a given party's violations." John's Insulation, Inc. v. L. Addison and Assocs., Inc., 156 F.3d 101, 110 (1st Cir. 1998).
Here, Stamford's improper conduct was continuing litigation when it knew it could not prevail. Had Stamford withdrawn its case earlier, the Met may have been spared the cost of moving for sanctions, and this Court may not have been required to expend its limited judicial resources. Accordingly, in the exercise of my inherent powers, the Met is awarded the cost of making this motion, including attorneys' fees. C.f. Christiansburg Garment, 434 U.S. at 422 (holding that, where statute only awards attorneys fees to prevailing plaintiffs in Title VII actions, defendant has a "stron[g] basis" for seeking attorneys fees if plaintiff continued to press a claim that had become unreasonable and "continued such a claim in bad faith"); Hamer v. Lake County, 819 F.2d 1362, 1367 (7th Cir. 1987) (noting, in similar context, that an award of attorneys' fees is appropriate where plaintiff "continued to litigate" after a claim became frivolous).
IV. CONCLUSION
For the foregoing reasons, the Met's motion for sanctions is granted in part and denied in part. Stamford and its counsel are ordered to pay to the Met the cost of making this motion, including attorneys' fees. To the extent that the Met seeks further costs and an additional monetary sanction, its motion is denied.
SO ORDERED.