Kosterlitz v. The S/V Knotta KLU et al

Filing 47

ORDER: Plaintiff Michael Kosterlitz's Motion to Strike Defendant's Affirmative Defenses and Counterclaim as Fraud on the Court, Dismiss Counterclaim and Defenses with Prejudice and Enter Default (Doc. # 24 ), which the Court construes as a motion for sanctions, is DENIED. Signed by Judge Virginia M. Hernandez Covington on 6/21/2018. (DMD)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
MICHAEL KOSTERLITZ,
Plaintiff,
v.

Case No. 8:18-cv-569-T-33JSS

THE S/V KNOTTA KLU and
ROBERT E. LIBBEY, JR.,
Defendants.
/
ORDER
This matter comes before the Court upon consideration of
Plaintiff Michael Kosterlitz’s Motion to Strike Defendant’s
Affirmative Defenses and Counterclaim as Fraud on the Court,
Dismiss Counterclaim and Defenses with Prejudice and Enter
Default (Doc. # 24), filed on May 3, 2018. Defendant Robert
E. Libbey, Jr. responded on May 17, 2018. (Doc. # 28). For
the reasons that follow, the Motion is denied.
I.

Background
One question dominates all the claims and counterclaims

in this case: who owns the 40-foot catamaran, the Knotta Klu?
Kosterlitz initiated this action on March 9, 2018, alleging
he is the vessel’s true owner and asserting a petitory and
possessory claim in admiralty as well as claims for malicious
prosecution, civil theft, conversion, and false arrest. (Doc.

1

# 1). The gist of Kosterlitz’s claims is that he and Libbey,
who used to be friends, had tried to negotiate the sale of
the Knotta Klu from Kosterlitz to Libbey. (Id. at 3). Although
their negotiations began in June of 2015, Kosterlitz and
Libbey still had not settled on a sales price over two years
later. (Id. at 4-5). Nevertheless, Libbey kept the Knotta Klu
docked on his property and made payments to Kosterlitz. (Id.
at 3-4). According to Kosterlitz, Libbey maintained that they
had executed a bill of sale for the Knotta Klu in October of
2017, while Kosterlitz asserted no such sale had taken place
and sought return of the Knotta Klu. (Id. at 5).
Kosterlitz eventually decided to take possession of the
Knotta Klu by going to Libbey’s property and removing the
vessel on December 26, 2017. (Id.). Libbey then filed a report
with the Lee County Sheriff alleging that Kosterlitz had
stolen the Knotta Klu. (Id. at 5-6). Kosterlitz was arrested
for grand larceny. (Id. at 6). The Lee County State Attorney
ultimately determined that no charges should be brought.
(Id.).
Libbey

sings

a

different

tune.

In

his

Answer

and

Counterclaim, Libbey contends he is the true owner of the
Knotta Klu because he and Kosterlitz completed the sale of
the vessel. (Doc. # 15 at 7-8). Libbey alleges the sale

2

occurred in August of 2015, with Libbey “assum[ing] the
monthly payment of an unsecured Note owed to its holder, Ned
Christensen;

convey[ing]

possession

and

title

to

a

F-27

trimaran to Kosterlitz; and assum[ing] the balloon payment of
the ‘Christensen’ Note when it became due.” (Id. at 7).
Libbey attaches a bill of sale to his Answer. (Id. at 13).
Also in August of 2015, Libbey “entered into an agreement
with ‘Christensen’ to assume the monthly debt and the balloon
payment due on the unsecured note to complete the purchase of
the subject vessel free and clear of any claim.” (Id. at 8).
Libbey attaches an unsigned “Promissory Note,” dated December
1, 2017, which purports to “replace[] [the] prior Promissory
Note between” Kosterlitz and Christensen. (Id. at 14).
In addition to assuming the Note and giving Kosterlitz
the trimaran, Libbey also made “an initial payment” of $5,000
to Kosterlitz’s account. (Id. at 8). Libbey summarizes all
that

he

paid

to

purchase

the

Knotta

Klu

in

his

second

affirmative defense to Kosterlitz’s Complaint: “the sum of
$40,974.60 in cash together with the in-kind value of a F-27
trimaran vessel with an agreed minimum value of $30,000,
together with [Libbey’s] assumption of the Promissory Note.”
(Id. at 5). Yet, Kosterlitz “surreptitiously entered onto the
Libbey property and attempted to remove the subject vessel to

3

an unknown location.” (Id.). Based on these allegations,
Libbey asserts a petitory and possessory counterclaim as well
as counterclaims for conversion and unjust enrichment against
Kosterlitz.
Kosterlitz filed the instant Motion, which this Court
construes as a motion for sanctions, on May 3, 2018. (Doc. #
24). Kosterlitz argues that Libbey has committed a fraud upon
the Court because Libbey alleged a different sales price for
the Knotta Klu in a state court complaint filed on March 9,
2018 — the same day Kosterlitz filed this case. (Id. at 4-5;
Doc. # 24-2). He asserts that Libbey’s unexecuted promissory
note, by which Libbey supposedly assumed Kosterlitz’s debt to
Christensen and which Libbey attached to his Counterclaim,
(Doc. # 15 at 14), is manufactured evidence. Kosterlitz also
notes that Christensen, who is represented by the same counsel
as Libbey, has filed a state court action against Kosterlitz.
In that action, Christensen alleges that Kosterlitz — not
Libbey — owes him money under the promissory note. (Doc. #
24-3). Because of these inconsistencies, Kosterlitz contends
Libbey should be sanctioned for perpetrating a fraud on the
Court by having his Answer and Affirmative Defenses stricken,
having

default

entered

against

him,

and

having

Counterclaim dismissed with prejudice. (Doc. # 24 at 7).

4

the

Libbey has now responded, (Doc. # 28), and the Motion is
ripe for review.
II.

Discussion
The Court construes Kosterlitz’s Motion as a motion for

sanctions because Kosterlitz alleges that Libbey’s pleadings
and

Counterclaim

should

be

respectively

stricken

and

dismissed because of a supposed fraud on the Court.
“Federal

courts

derive

their

power

to

sanction

any

attorney, law firm, or party from three primary sources: Rule
11 of the Federal Rules of Civil Procedure, 28 U.S.C. § 1927,
and the inherent power of the court.” Stonecreek - AAA, LLC
v. Wells Fargo Bank N.A., No. 1:12-CV-23850, 2014 WL 12514900,
at *1 (S.D. Fla. May 13, 2014)(citing Chambers v. NASCO, Inc.,
501 U.S. 32, 41 (1991)). “Invocation of the Court’s inherent
power requires a finding of bad faith.” Island Stone Int’l
Ltd. v. Island Stone India Private Ltd., No. 6:16-cv-656-Orl40KRS, 2017 WL 1437464, at *11 (M.D. Fla. Apr. 4, 2017),
report and recommendation adopted, No. 6:16-cv-656-Orl-40KRS,
2017 WL 1426664 (M.D. Fla. Apr. 21, 2017). “In determining
whether

sanctions

are

appropriate

under

the

bad

faith

standard, the court focuses on the conduct and motive of a
party, rather than on the validity of the case.” Id.

5

“‘[A]cts which degrade the judicial system,’ including
‘attempts

to

deprive

the

Court

of

jurisdiction,

fraud,

misleading and lying to the Court,’ . . . are sanctioned
through the court’s inherent power.” Stonecreek — AAA, 2014
WL 12514900, at *1 (quoting Chambers, 501 U.S. at 32, 42). “A
court has the power to conduct an independent investigation
in order to determine whether it has been the victim of
fraud.”

Chambers,

501

U.S.

at

44

(citing

Universal

Oil

Products Co. v. Root Refining Co., 328 U.S. 575, 580 (1946)).
“A ‘fraud on the court’ occurs where it can be demonstrated,
clearly and convincingly, that a party has sentiently set in
motion some unconscionable scheme calculated to interfere
with the judicial system’s ability impartially to adjudicate
a matter by improperly influencing the trier or unfairly
hampering the presentation of the opposing party’s claim or
defense.” Aoude v. Mobil Oil Corp., 892 F.2d 1115, 1118 (1st
Cir. 1989); see also Gupta v. Walt Disney World Co., 482 F.
App’x

458,

459

(11th

Cir.

2012)(“[C]lear

and

convincing

evidence of egregious conduct [is] required to establish
fraud on the court.”).
“The Court’s inherent power permits a broad spectrum of
sanctions

that

include

striking

frivolous

pleadings

and

defenses, imposing attorney’s fees and costs, and outright

6

dismissal of a lawsuit.” Stonecreek – AAA, 2014 WL 12514900,
at *2 (citing Allapattah Servs., Inc. v. Exxon Corp., 372 F.
Supp. 2d 1344, 1372-73 (S.D. Fla. 2005)). “Because of their
very

potency,

restraint

and

inherent

powers

discretion.”

must

be

Chambers,

501

exercised
U.S.

at

with
44.

“[S]anctions for fraud are reserved for the most egregious
misconduct, such as bribery of a judge or members of a jury,
or the fabrication of evidence by a party in which an attorney
is implicated.” Island Stone Int’l Ltd., 2017 WL 1437464, at
*11.
Kosterlitz has not shown a fraud on the Court by clear
and convincing evidence. First, the Court will address the
gravest of Kosterlitz’s accusations: that Libbey manufactured
the unsigned “Promissory Note” to support his claim that
assumption of Kosterlitz’s debt to Christensen was part of
the purchase price for the Knotta Klu. (Doc. # 24 at 5).
According

to

Kosterlitz,

the

claim

that

Libbey

assumed

Kosterlitz’s debt “is obviously false, and Libbey knows it is
false, because Libbey’s attorney, after Libbey made this
claim

in

federal

court,

sued

Kosterlitz

on

behalf

of

Christensen claiming that Kosterlitz owes Christensen the
note

without

reference

to

7

any

purported

subsequent

‘replacement’

agreement

between

Libbey

and

Christensen.”

(Id.).
But Kosterlitz presents no direct evidence that Libbey
manufactured

the

unsigned

“Promissory

Note.”

Libbey

only

would have “manufactured” the “Promissory Note” if he drafted
it and back-dated it to December 1, 2017, in order to file it
as evidence in this case. Kosterlitz has no evidence that
occurred. True, the fact that Libbey’s counsel represents
Christensen in a state court action in which Christensen
alleges

Kosterlitz

owes

the

debt

is

disconcerting.

Nevertheless, at most that proves that Christensen and Libbey
no longer agree on the validity of Libbey’s assumption of
Kosterlitz’s debt, with the same counsel willing to argue
each viewpoint in different actions. While this calls into
question the behavior of Libbey’s counsel, it does not suggest
that Libbey does not believe his assumption of the debt is
valid, let alone that Libbey fabricated the “Promissory Note”
in order to fool the Court.
A

case

Kosterlitz’s

cited

heavily

manufactured

by

Kosterlitz

evidence

illustrates

argument

fails.

why
In

Stonecreek — AAA, the defendant argued that the case should
be dismissed because plaintiffs had manufactured evidence —
forged

documents

—

in

order

8

to

support

their

claims.

Stonecreek — AAA, 2014 WL 12514900, at *1. The Stonecreek —
AAA court agreed and dismissed the case as a sanction because
defendant presented clear and convincing evidence that the
signatures on the relevant documents were forged. Id. at *23. Defendant presented the testimony of two individuals who
supposedly signed the documents, both averring under penalty
of perjury that their signatures were forged. Id. Defendant
also presented the testimony of a handwriting expert, who
opined

that

both

signatures

were

forgeries.

Id.

at

*3.

Kosterlitz has not presented any proof like that in Stonecreek
—

AAA.

Therefore,

presenting

clear

Kosterlitz
and

has

convincing

not

met

evidence

his

burden

that

of

Libbey

manufactured the unsigned “Promissory Note.”
Kosterlitz goes on to argue the legal merits of the
unsigned “Promissory Note,” contending that it is “facially
invalid as a matter of law” and violates Florida’s Statute of
Frauds. (Doc. # 24 at 5). This argument concerns the validity
of Libbey’s defense that he assumed Kosterlitz’s debt to
Christensen. But, in determining whether a fraud on the Court
has occurred, the Court does not focus on the validity of a
claim. It focuses on the conduct and motive of the party
accused of committing the fraud. See Island Stone Int’l Ltd.,
2017 WL 1437464, at *11 (“In determining whether sanctions

9

are appropriate under the bad faith standard, the court
focuses on the conduct and motive of a party, rather than on
the validity of the case.”). The question of whether the
“Promissory Note” provided by Libbey is legally valid is not
before this Court on this Motion. Therefore, the Court will
not address it.
Next,

Kosterlitz

makes

much

of

the

differences

in

Libbey’s pleadings in the state court action, which has since
been removed to this Court, and in this action. He argues
that Libbey’s complaint in the related case proves Libbey
lied in his Answer and Counterclaim in this case. (Doc. # 24
at 6-7). According to Kosterlitz, “there is no reconciling
the Libbey State Court Complaint and the federal Affirmative
Defenses and Counterclaim.” (Id. at 7).
True, Libbey’s pleadings are not paragons of clarity.
There are conflicts between his Answer, Affirmative Defenses,
and Counterclaim in this case and his complaint in the related
action originally filed in state court. But these conflicts
can be reconciled without resorting to accusations of fraud
on the Court. Rather, poor draftsmanship and a muddled theory
of the case appear to be the culprits. While the $17,500
figure in Libbey’s complaint in the related case is not
mentioned in his Affirmative Defenses or Counterclaim in this

10

case, there is evidence on the record here related to that
figure. Attached to Libbey’s response to the motion for
judgment on the pleadings is a “Sells Agreement” dated August
14, 2015, signed by both Kosterlitz and Libbey. (Doc. # 27-1
at 7). In it, the sales price of the Knotta Klu, related
equipment, and outboard motor is set at $17,500. (Id.). But
a later email from Kosterlitz to Libbey, dated April 18, 2016,
lists the sales price of the Knotta Klu as involving: “the
pay off” amount for the Christensen note, Libbey’s trimaran,
and

the

remaining

balance

of

$8,000

($16,000

minus

the

interest on money Libbey had lent to Kosterlitz) in cash.
(Doc. # 27-1 at 8).
Thus, there were multiple elements to Libbey’s purchase
of the Knotta Klu — none of which are particularly clear at
this stage — and Libbey focused on different elements in
different pleadings. In his complaint originally filed in
state court, Libbey mentions only the $17,500 cash element of
the purchase price. And, in his Counterclaim in this case, he
focuses

primarily

on

the

assumption

of

the

Christensen

promissory note and trade of the trimaran vessel. But even in
his Counterclaim, where Libbey does not mention a $17,500
cash payment as part of the purchase price, Libbey makes it
clear that additional cash payments were made to Kosterlitz.

11

Libbey pleads that he made a $5,000 “initial payment” to
Kosterlitz in addition to assuming the promissory note and
giving Kosterlitz the trimaran. (Doc. # 15 at 8). Libbey goes
on to allege that he “has in fact made payments to or on
behalf of Kosterlitz in the amount of $40,974.00.” (Id.).
It seems to the Court that Libbey merely failed to
mention the other non-cash elements of the alleged purchase
price in his complaint in the related case. And, in his Answer
and Counterclaim in this action, Libbey failed to specify a
specific $17,500 cash payment, though he alludes to an even
larger amount of cash paid to Kosterlitz or to others on
behalf of Kosterlitz. Poor draftsmanship? Yes. Fraud on the
Court? No. On the record here, the Court is not convinced
that Libbey and his counsel intentionally lied in their
pleadings about the purchase price for the Knotta Klu. Because
Kosterlitz has not met his burden of establishing a fraud on
the Court by clear and convincing evidence, Kosterlitz’s
Motion is denied.
Accordingly, it is now
ORDERED, ADJUDGED, and DECREED:
Plaintiff

Michael

Kosterlitz’s

Motion

to

Strike

Defendant’s Affirmative Defenses and Counterclaim as Fraud on
the Court, Dismiss Counterclaim and Defenses with Prejudice

12

and Enter Default (Doc. # 24), which the Court construes as
a motion for sanctions, is DENIED.
DONE and ORDERED in Chambers in Tampa, Florida, this
21st day of June, 2018.

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