TIC Park Centre 9, LLC v. Wojnar et al

Filing 255

ORDER denying 236 Defendants' Motion for Sanctions. Signed by Magistrate Judge Edwin G. Torres on 10/10/2018. See attached document for full details. (js02)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 16-24569-Civ-WILLIAMS/TORRES
TIC PARK CENTRE 9, LLC, a
Delaware limited liability company,
Plaintiff,
v.
MICHAEL MANUEL CABOT, et al.
Defendant.
________________________________/
ORDER DENYING THE DEFENDANTS’ MOTION FOR SANCTIONS
This matter is before the Court on Jeffrey K. Miller’s (“Mr. Miller”), Park
Centre Med-Suites, LLC’s (“Park-Centre”), Gardens Med-Suites, LLC’s (“Gardens”),
and Medical Practice Operations, Inc.’s (“MPO”) (collectively, the “Miller
Defendants”) motion for Rule 11 sanctions against TIC Park Centre, LLC
(“Plaintiff”). [D.E. 236].

Plaintiff responded to the Miller Defendants’ motion on

September 24, 2018 [D.E. 245] to which the Miller Defendants replied on September
29, 2018.
disposition.

[D.E. 248]. Therefore, the Miller Defendants’ motion is now ripe for
After careful consideration of the motion, response, reply, and relevant

authority, and for the reasons discussed below, the Miller Defendants’ motion is
DENIED.

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I.

BACKGROUND

Plaintiff commenced this action in the Eastern District of New York to seek
remedies for illegal actions that resulted in a 2014 loss of a multi-million dollar
investment in commercial property (the “Property”) in Miami Gardens, Florida. On
November 16, 2017 (after the case was returned to the Eastern District from an
arbitration in which the Miller Defendants and Mark Wojnar (“Mr. Wojnar”) were
unable to pay the arbitrator fees), the Miller Defendants filed their answer to the
complaint. The Miller Defendants’ answer contained eight affirmative defenses, but
did not include Florida’s litigation privilege as an affirmative defense. On March 6,
2018, the Eastern District transferred the case to the Southern District of Florida
where Plaintiff was pursuing parallel litigation against Michael Cabot, Catherine
Cabot, Mariner Property Management Services, LLC, and WTK Realty, LLC
(collectively, the “Cabot Defendants”).
Plaintiff alleges that the Cabot and Miller Defendants engaged in leasing
schemes to steal money from the Property and aided in the Property’s ultimate loss to
foreclosure. Specifically, Plaintiff claims that the Miller Defendants violated their
duties under the Property Management Agreement and a separate Tenant in
Common Agreement by entering into two fraudulent leases with Park-Centre and
Gardens in 2010 – who then subleased the Property to other tenants. Messrs. Cabot
and Wojnar purportedly used the Mariner Entities as a facade for their own personal
economic benefit and harbored monies wrongfully taken from Plaintiff’s Property,
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including through an entity established in their wives’ names.
As a result of those subleases, Plaintiff alleges that $130,000 in rental income
that otherwise would have been paid to the Property between 2011 and 2012 was
diverted from the Property to the owner of those two entities, Mr. Miller, and
$164,848.59 in broker commissions was paid to WTK Realty, LLC, which Plaintiff
alleges were disguised payments of Property income to Messrs. Cabot and Wojnar.
After Midgard Management, Inc. took over the management of the Property in April
2011, it brought eviction actions against Park Centre Med-Suites, LLC and Garden
Med-Suites, LLC.
Among their defenses to Plaintiff’s Complaint, the Cabot and Miller
Defendants argue that (1) their actions were protected by the business-judgment
rule, (2) they were commercially reasonable, (3) the Property suffered from the recent
economic recession rather than any misconduct, and (4) there was inadequate capital
for the Property to meet its financial obligations.1
II.
A.

ANALYSIS

Rule 11 Sanctions Standard

“Rule 11 is intended to deter claims with no factual or legal basis at all;
creative claims, coupled even with ambiguous or inconsequential facts, may merit
dismissal, but not punishment.”
(emphasis in original).

Davis v. Carl, 9106 F.2d 533, 538 (11th Cir. 1990)

Rule 11 sanctions are proper “(1) when a party files a

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The Court has diversity jurisdiction over all claims asserted in the complaint because
Plaintiff is a citizen of New York and defendants are citizens of Massachusetts, Florida, and
Delaware.
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pleading that has no reasonable factual basis; (2) when the party files a pleading
that is based on legal theory that has no reasonable chance of success and that
cannot be advanced as a reasonable argument to change existing law; or (3) when
the party files a pleading in bad faith for an improper purpose.”

Worldwide

Primates, Inc. v. McGreal, 87 F.3d 1252, 1254 (11th Cir. 1996) (quoting Jones v.
International Riding Helmets, Ltd., 49 F.3d 692, 694 (11th Cir. 1995)).

Federal

Rules of Civil Procedure 11(b)(1) and 11(b)(3) state:
By presenting to the court a pleading, written motion, or other
paperCwhether by signing, filing, submitting, or later advocating itCan
attorney or unrepresented party certifies that to the best of the person=s
knowledge, information, and belief, formed after an inquiry reasonable
under the circumstances: (1) it is not being presented for any improper
purpose, such as to harass, cause unnecessary delay, or needlessly
increase the cost of litigation . . . (3) the factual contentions have
evidentiary support or, if specifically so identified, will likely have
evidentiary support after a reasonable opportunity for further
investigation or discovery . . . . Fed. R. Civ. Pro. 11(b)(1), 11(b)(3).
Additionally, Federal Rule of Civil Procedure 11(c)(1) states the following:
If, after notice and a reasonable opportunity to respond, the court
determines that Rule 11(b) has been violated, the court may impose an
appropriate sanction on any attorney, law firm, or party that violated
the rule or is responsible for the violation. Fed. R. Civ. Pro. 11(c)(1).
“In this circuit, a court confronted with a motion for Rule 11 sanctions first
determines whether the party’s claims are objectively frivolousCin view of the facts
or lawCand then, if they are, whether the person who signed the pleadings should
have been aware that they were frivolous; that is, whether he would’ve been aware
had he made a reasonable inquiry.

If the attorney failed to make a reasonable

inquiry, then the court must impose sanctions despite the attorney=s good faith belief
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that the claims were sound.

The reasonableness of the inquiry >may depend on

such factors as how much time for investigation was available to the signer; whether
he had to rely on a client for information as to the facts underlying the [violative
document]; . . . or whether he depended on forwarding counsel or another member of
the bar.”

Worldwide Primates, Inc., 87 F.3d at 695 (quoting Mike Ousley

Productions, Inc. v. WJBF-TV, 952 F.2d 380, 382 (11th Cir. 1992)); see also Byrne v.
Nezhat, 261 F.3d 1075, 1105 (11th Cir. 2001).

AAlthough sanctions are warranted

when the claimant exhibits a >deliberate indifference to obvious facts,= they are not
warranted when the claimant=s evidence is merely weak but appears sufficient, after
a reasonable inquiry, to support a claim under existing law.@ Baker v. Adelman,
158 F.3d 516, 524 (11th Cir. 1998) (citations omitted).
B.

Rule 11 Sanctions

The Miller Defendants seek Rule 11 sanctions because Plaintiff has no viable
cause of action. The Miller Defendants direct the Court’s attention to Plaintiff’s
summary judgment filings where Plaintiff failed to rely on any record evidence.
Specifically, the Miller Defendants claim that Plaintiff relies entirely on its own
speculation and conclusory assertions, both of which establish that neither Plaintiff
nor its attorneys performed any inquiry into the factual support of Plaintiff’s claims.
Therefore, the Miller Defendants believe that a sanction should be imposed that (1)
awards Plaintiff all of its costs and reasonable attorneys’ fees, (2) requires the
payment of a fine for a waste of the Court’s time and resources, and (3) imposes a
nonmonetary sanction for Plaintiff’s counsel to attend training courses on federal
court practice.
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The Miller Defendants’ motion must be denied because it is premature at
this stage of the litigation. As the Eleventh Circuit has found, Rule 11 sanctions
are ordinarily not determined until the end of a case:
Although the timing of sanctions rests in the discretion of the trial
judge, it is anticipated that in the case of pleadings the sanctions issue
under Rule 11 normally will be determined at the end of the litigation,
and in the case of motions at the time when the motion is decided or
shortly thereafter.
Donaldson v. Clark, 819 F.2d 1551, 1555 (11th Cir. 1987) (quotation marks and
citation omitted).

The Eleventh Circuit’s position is consistent with the Rules

Advisory Committee which “anticipated that in the case of pleadings the sanctions
issue under Rule 11 normally will be determined at the end of the litigation. . .
.”

Fed. R. Civ. P. 11 (Advisory Committee Notes, 1983 Amendment); see

also Lichtenstein v. Consolidated Serv. Group, Inc., 173 F.3d 17, 23 (1st Cir.
1999) (emphasizing that “[c]ourts should, and often do, defer consideration of certain
kinds of sanctions motions until the end of [the litigation] to gain a full sense of the
case and to avoid unnecessary delay of disposition of the case on the merits. This is
a sensible practice where [as here] the thrust of the sanctions motion is that
institution of the case itself was improper”); Hallwood Realty Partners, L.P. v.
Gotham Partners, L.P., 2000 WL 528633, at *1 (S.D.N.Y. May 2, 2000) (denying Rule
11 motion without prejudice “to renewal at conclusion of litigation”); Wright and
Miller, Federal Practice and Procedure: Civil 3d § 1337.1 (2004) (stating that when
“the challenged conduct is the institution of the action itself . . . the question whether
there has been a Rule 11 violation generally is not decided until after the litigation is
completed, in order to avoid delaying the disposition of the merits of the case”).
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The basis for the Miller Defendants’ motion is the lack of evidence in Plaintiff’s
summary judgment filings. But, “‘Rule 11 should not be used to raise issues as to
the legal sufficiency of a claim or defense that more appropriately can be disposed of
by a motion to dismiss, a motion for judgment on the pleadings, a motion for
summary judgment, or a trial on the merits.”’

Bigford v. BESM, Inc., No.

12-61215-CIV, 2012 WL 12886184, at *2 (S.D. Fla. Oct. 12, 2012) (quoting In re New
Motor Vehicles Canadian Export Antitrust Litigation, 244 F.R.D. 70, 74 (D. Me. 2007)
(denying Rule 11 motion without prejudice to its renewal “if and when [Defendant]
obtains summary judgment”) (citations omitted)); see also Safe-Strap Co., Inc. v.
Koala Corp., 270 F. Supp. 2d 407, 417-21 (S.D.N.Y. 2003) (discussing that Rule 11
sanctions are not a substitute for motions for summary judgment).
The reason Rule 11 sanctions are deferred until the end of a case is to allow the
court “to gain a full sense of the case and to avoid unnecessary delay of disposition of
the case on the merits. This is a sensible practice where the thrust of the sanctions
motion is that institution of the case itself was improper.” Lichtenstein v. Consol.
Servs. Grp., Inc., 173 F.3d 17, 23 (1st Cir. 1999) (citing 5A Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 1337, at 121 (2d ed. 1990)).
Here, we see no reason to deviate from the preferred practice described above.
While the Miller Defendants may ultimately be correct in that Plaintiff’s conduct
warrants Rule 11 sanctions, Plaintiff is entitled to the disposition of the parties’ cross
motions for summary judgment and a determination on the merits of the claims
presented. See Gonzalez v. Winn-Dixie Stores, Inc., (S.D. Fla. May 6, 2014) (finding
that the defendant’s early motion for sanctions, filed against Palma and his then
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client, was premature and could be refiled once the court had ruled on the
defendant’s motion for summary judgment).
As such, the Miller Defendants’ motion for sanctions is DENIED as premature
with leave to renew, if applicable, at the conclusion of this case. See, e.g., Baker, 158
F.3d at 523 (“Although the timing of sanctions rests in the district judge’s discretion,
Rule 11 sanctions ‘normally will be determined at the end of litigation.’”); Hallwood
Realty Partners, L.P. v. Gotham Partners, L.P., 2000 WL 528633, at *1 (S.D.N.Y. May
2, 2000) (denying Rule 11 motion without prejudice “to renewal at conclusion of
litigation”); Wright and Miller, Federal Practice and Procedure: Civil 3d § 1337.1
(2004) (stating that when “the challenged conduct is the institution of the action
itself ... the question whether there has been a Rule11 violation generally is not
decided until after the litigation is completed, in order to avoid delaying the
disposition of the merits of the case”).
III.

CONCLUSION

For the foregoing reasons, it is hereby ORDERED AND ADJUDGED that
the Miller Defendants’ motion for sanctions [D.E. 236] is DENIED as premature
with leave to renew, if applicable, at the conclusion of this case.2

Plaintiff filed a sur-reply seeking sanctions against the Miller Defendants for
filing a Rule 11 sanctions motion. Plaintiff’s motion is DENIED because the Miller
Defendants may have a good faith basis for sanctions. Of course, we cannot make
that determination at this stage of the case for the same reasons set forth above.
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2

DONE AND ORDERED in Chambers at Miami, Florida, this 10th day of
October, 2018.

/s/ Edwin G. Torres
EDWIN G. TORRES
United States Magistrate Judge

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