Attorneys Ordered to Pay Opponent's Costs of Defending Frivolous Suits

Attorneys Ordered to Pay Opponent's Costs of Defending Frivolous Suits
The New York Law Journal by Andrew Keshner  -  February 10, 2012

Two attorneys and their client have been ordered to pay a sanction of $84,000, the amount it cost their opponent to defend what a federal appellate panel has deemed a frivolous litigation.  Eastern District Judge Denis R. Hurley, sitting in Central Islip, ordered attorneys Mitchell A. Stein and Steven Altman to pay just over $75,000 out of an almost $84,000 award in costs for pressing an appeal on a securities fraud suit against a members-only Long Island hunting preserve.  The lawyers' client, John H. Libaire, bought his share in the preserve in January 1988 for $12,500. In November 2003, he and other minority shareholders sued the partnership in state court alleging waste, fraud, corporate mismanagement and breach of fiduciary duty. Those claims were eventually dismissed, but Mr. Libaire also sued in federal court, claiming his annual $9,000 membership fee represented the purchase of a second security. Judge Hurley ruled that action was time-barred and frivolous.  In May 2009, the judge imposed just under $95,000 in costs against Mr. Stein and Mr. Libaire for bringing the federal suit. The U.S. Court of Appeals for the Second Circuit upheld his ruling (NYLJ, May 28, 2009, and Oct. 13, 2010).  The circuit later authorized the payment of costs and fees to defend the frivolous appeal and remanded the case to the district court for a calculation of fees (NYLJ, Feb. 8, 2011).  In Libaire v. Kaplan, 06-cv-1500, issued on Jan. 30, Judge Hurley wrote, "Although Libaire, as plaintiff, may legally be sanctioned for the conduct of his attorney, the Court is nevertheless mindful that Libaire's counsel is in a far better position to evaluate the propriety of certain arguments on appeal. Furthermore, defendants have not demonstrated a 'coordinated effort' between Libaire and his appellate counsel sufficient to justify holding Libaire jointly and severally liable for the entire cost of bringing a frivolous appeal."  In a separate decision issued the same day, Judge Hurley ruled that Mr. Stein had racked up $44,400 in contempt fees for a seven-month-period in which he did not comply with the defendant's subpoena to enforce the $95,000 judgment against him and his client, Mr. Libaire.  Mr. Stein and Mr. Libaire eventually paid the $95,000 and Mr. Stein argued that satisfaction of the judgment was rendered moot.  But Judge Hurley wrote, "Were the Court to accept Stein's argument here that his payment of the judgment retroactively 'moots' his prior period of noncompliance, then civil contempt orders would necessarily lose their coercive effect…Stein's subsequent payment of the judgment neither moots, nor excuses, his previous failure to comply with the court's orders."  In his decision on the calculation of costs, Judge Hurley noted that Mr. Altman, in arguing against any award, concluded that Federal Rule of Appellate Procedure 38, which the circuit invoked in granting attorney fees and costs, contained no "bright-line rule" on its application.  But Judge Hurley said the arguments fell outside his scope, having been directed on remand to determine fees and costs.  "Although the permissive nature of [Federal Rule of Appellate Procedure] 38's language gives the Second Circuit discretion whether to impose sanctions for frivolous appeals, it does not give this Court that same option, nor does it in any way permit this Court to ignore direct remand orders from the Circuit," Judge Hurley wrote.  When considering whether Mr. Altman should be held liable, Judge Hurley looked to Magistrate Judge E. Thomas Boyle's report and recommendation, which observed Mr. Altman was the counsel of record on the appeal, arguing the matter before the circuit and signing several court papers. Mr. Stein was 'of counsel' in many papers in the appeal, Magistrate Judge Boyle's report said.  "Given these facts, there is no basis for declining to apportion liability to Altman for an appeal in which, inter alia, he appeared as the counsel of record," Judge Hurley wrote.  In the order on Mr. Stein's contempt fees, Judge Hurley noted that defendants issued a subpoena to Mr. Stein in June 2010 seeking his deposition and financial records in an effort to enforce the $95,000 judgment against him and Mr. Libaire.  By March 2011, Judge Hurley found him in contempt for non-compliance and gave him several days to comply before imposing a $200 a day penalty on Mr. Stein.  At an October hearing on an order to show cause why he should not be incarcerated until his compliance, Mr. Stein produced documents and in November paid the $95,000 judgment.  Judge Hurley also allowed the defendants to move for an award of attorney fees for having to litigate the contempt matter.  Ronald J. Rosenberg of Rosenberg Calica & Birney in Garden City, who represented the partnership that owned the preserve, called both rulings "proper" and said, "I think it's critical to the administration of justice that lawyers who appear before the court do regard and respect orders of the court, particularly those they don't agree with. Otherwise, there'd be chaos."  The preserve sold a majority of its land to Suffolk County and the Town of Riverhead in November 2011, according Mr. Rosenberg. The land will be used as a park facility, he said.  Mr. Altman of Altman & Company did not return a call for comment. Attorney James Schooley, speaking for Stein Law in Northport, said, "the case is ongoing, we have no comment."  Andrew Keshner can be contacted at akeshner@alm.com.