AKISHEV et al v. KAPUSTIN et al

Filing 309

OPINION FILED. Signed by Judge Noel L. Hillman on 12/16/2015. (drw)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

Ardak Akishev, et al.,

Civil Action No.
13-7152(NLH)(AMD)

Plaintiffs,
v.

OPINION

Sergey Kapustin, et al.,
Defendants.

HILLMAN, District Judge
This case concerns a “bait-and-switch” fraudulent scheme
masterminded and operated by defendant, Sergey Kapustin,
through deceptive advertising aimed at luring international
customers to wire funds for automobile purchases and then
switching to higher prices, misrepresenting mileage, condition
and location and ownership of these vehicles, extorting more
funds, and failing to deliver the paid-for-vehicles.
Plaintiffs, a group of twenty-one victims, asserted claims
against Kapustin, his corporate entities, and other related
individuals, for violations of, inter alia, the Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(ac).

Presently before the Court is the motion of Plaintiffs

for attorneys’ fees and costs relating to the imposition of
sanctions against Kapustin’s former attorney, Boris Parker.
This case has a tortured procedural history, which is
comprehensively detailed in the Order granting plaintiffs’

motion for final default judgment against Kapustin and his
corporate entities.

(Docket No. 272.)

Relevant to the

instant motion, the summary of the events leading to Mr.
Parker’s withdrawal from the case is as follows:
On June 3, 2014, Plaintiffs filed their Motion for
an Order to Freeze the Assets of Defendants and Expedited
Discovery Related to Assets pursuant to Federal Rule of
Civil Procedure 65 representing the funds Plaintiffs
wired to the bank accounts of Global Auto, G Auto, Effect
Auto, and Global Cars to purchase the motor vehicles
advertised for sale by Global Defendants and received
neither the vehicles nor the refunds. If the funds
remaining in those accounts were insufficient, Plaintiffs
requested the Court to direct Defendants to place the
funds in an escrow account and to permit expedited
discovery related to the disposition of the funds and
Defendants’ assets, including their ownership of hotel
“Motel Road 66” in Finland. Having received the Global
Defendants’ opposition, in which they did not dispute
receiving the Wired Funds, on September 5, 2014, the
Court held an evidentiary hearing on the Asset Freeze
Motion.
On September 23, 2014, to avoid the immediate freeze
of the corporate Global Defendants’ bank accounts,
Plaintiffs and Global Defendants agreed to and the Court
entered the Consent Order, Docket No. 80, to deposit into
the registry of the Court $400,000.00 in monthly
installments within 90 days of the Consent Order and to
provide expedited discovery related to the disposition of
Plaintiffs’ funds and Defendants’ assets. Global
Defendants failed to comply with the Consent Order and
dissipated assets and depleted their bank accounts in
order to avoid compliance with the Consent Order. On
October 7, 2014, in order to evade his obligations under
the Consent Order, Defendant Sergey Kapustin filed his
Chapter 13 Bankruptcy Petition (Case No. 14-30488).
On October 23, 2014, Plaintiffs moved for contempt
against Global Defendants and their counsel. On October
24, 27, 28, 29 and November 3, 2014, the Court held
evidentiary hearings during which it was established that
while Global Defendants websites www.globalautousa.com,
www.effectauto.com, www.effectauto.ru advertised over
4,000 vehicles as “in stock”, Defendant Kapustin
testified only about 14 vehicles were actually owned by
the corporate Global Defendants, and some vehicles were
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sold twice through the Websites to foreign customers
using electronic mail communications and international
bank wire payments.
The Court made preliminary findings that there was
probable cause to believe that Global Defendants have
committed at least two predicate acts of mail and wire
fraud in the furtherance of a RICO enterprise through a
pattern of racketeering activity conducted operating
through the Internet. On October 27 and October 29,
2014, this Court ordered, pursuant to 18 U.S.C. § 1964
and, e.g., Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S.
479, 498 (1985) (explaining that RICO is to be read
broadly and liberally construed to effectuate its
remedial purposes), that the Defendants’ corporate bank
accounts to be frozen and the Websites to be shut down
immediately (Docket Nos. 106; 110).
The case has taken many twists and turns since October
2014, with Kapustin entering into a consent judgment with
Plaintiffs in the amount of $2,228,069.29 on September 21,
2015. 1

But, it is the circumstances surrounding the entry of

the September 2014 consent order and Kapustin’s filing for
bankruptcy 2 in October 2014 that form the basis of the Court’s

1

Despite the entry of the consent judgment with Kapustin, the
case marches on. Still pending is Plaintiffs’ motion for
summary judgment against individual defendants Irina Kapustina
and Michael Goloverya for their part in the RICO conspiracy to
defraud the Plaintiffs, as well as the corporate entities’
most recent counsel’s motion to be relieved as counsel.
Kapustin has assigned his cross-claims against defendants
Empire United Lines and Michael Hitrinov to Plaintiffs, who
have been substituted as Plaintiffs for those claims. Service
has just been effected upon Empire United Lines and Hitrinov.
2

This Court withdrew the reference of Kapustin’s and the
corporate defendants’ bankruptcy petitions from the bankruptcy
court pursuant to the first sentence of 28 U.S.C. § 157(d),
and ultimately dismissed the bankruptcies as fraudulent
filings. (See B.R. Case Nos. 14-30488, 14-32520, 14-32521, 1432522, 14-32523.)
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imposition of sanctions on Mr. Parker, and give rise to
Plaintiffs’ request for $203,000 in fees and costs.
On April 27, 2015, the Court conducted an evidentiary
hearing on Plaintiffs’ motion for sanctions against Mr. Parker
and found that Mr. Parker’s conduct relating to the signing of
the Consent Order was “objectively unreasonable” in violation
of Fed. R. Civ. P. 11.

One issue that troubled the Court

concerned Kapustin’s wire transfer of funds to Mr. Parker’s
firm’s trust account and the funds being applied to Mr.
Parker’s fees.

Another issue concerned Mr. Parker’s apparent

lack of due diligence into investigating whether Kapustin
truly had the assets he pledged to fulfill the $400,000
consent order.
The Court ordered Mr. Parker to submit an accounting of
those transferred funds, and notify the disciplinary
authorities in every state and court where he is licensed. 3
Mr. Parker complied on May 11, 2015.

(Docket No. 199.)

The

Court also directed Plaintiffs to file a formal motion for
their requested sanctions so that Mr. Parker could respond.
In their motion, Plaintiffs request that the Court award
their fees for attorney time and expenses incurred from July
7, 2014 through April 27, 2015 in connection with preliminary
injunction briefing and hearing, contempt hearings and related
briefings, discovery, and sanctions hearing and briefing in

3

The Court also relieved Mr. Parker and local counsel from
their representation of Kapustin and the corporate entities.
4

this matter, totaling approximately $203,000.

Mr. Parker

opposes Plaintiffs’ motion, arguing that he acted in good
faith at all times, and that monetary sanctions would be
improper under the circumstances of this case and the law
governing the imposition of sanctions.
Rule 11 provides,
By presenting to the court a pleading, written motion, or
other paper--whether by signing, filing, submitting, or
later advocating it--an 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; (2) the claims, defenses, and other legal
contentions are warranted by existing law or by a
nonfrivolous argument for extending, modifying, or
reversing existing law or for establishing new law; (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; and (4) the denials of
factual contentions are warranted on the evidence or, if
specifically so identified, are reasonably based on
belief or a lack of information.
Fed. R. Civ. P. 11(b).
An attorney’s signature certifies that the attorney has
satisfied three duties: (1) that he has read the documents;
(2) that he has made a reasonable inquiry; and (3) that he is
not acting in bad faith.

Each duty is independent; the

violation of one triggers Rule 11 sanctions.

CTC Imports &

Exports v. Nigerian Petroleum Corp., 951 F.2d 573, 578 (3d
Cir. 1991).
The main issue in this case is the reasonableness of Mr.
Parker’s inquiry into the legitimacy of Kapustin’s pledge to
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meet the $400,000 promised in the consent order.

In order to

determine the reasonableness of an inquiry, a court applies an
objective “reasonableness under the circumstances” standard.
Id. (citation omitted).

In applying this standard, the “court

is expected to avoid using the wisdom of hindsight and should
test the signer's conduct by inquiring what was reasonable to
believe at the time the pleading, motion, or other paper was
submitted.”

Id. (citations omitted).

Because the standard is

a fact specific one, the court must consider all the
circumstances.

Id. (citations omitted).

“Thus, what

constitutes a reasonable 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 pleading, motion, or other paper; . . .
or whether he depended on forwarding counsel or another member
of the bar.”

Particularly relevant is “whether [one] is in a

position to know or acquire the relevant factual details.”
Id. (citations omitted).
At the April 27, 2015 hearing, the Court found, “I would
not visit Mr. Kapustin's sins on you, except that it appears
to me that you did not engage in a diligent inquiry, [or] ask
the questions that needed to be asked about what assets were
truly available to meet the obligations of the consent order.
. . .”
35.)

(April 27, 2015 hearing transcript, Docket No. 198 at
The Court concluded, “Rule 11 sanctions are necessary

and appropriate in this case to be imposed upon you for the
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signing of the consent order, not the initial brief since at
the time there does appear that there were bank accounts with
hundreds of thousands of dollars, but if you had asked or made
inquiry or demanded documentation by September, . . . you
would have either known or should have known that Mr. Kapustin
was engaged in an elaborate shell game to defraud many, many
people by emptying his bank accounts after this lawsuit was
filed, by directing payments to offshore banks, by
transferring assets overseas, by pledging or offering to
pledge assets that he didn't own . . . . [and] [a]fter the
signing of that order, Mr. Kapustin went about arranging to
file bankruptcy . . . . If you had engaged in a reasonable
factual inquiry, you would have learned that Mr. Kapustin had
insufficient liquid assets and no reasonable prospect of
having liquidated assets sufficient to meet the terms of the
consent order.”

(April 27, 2015 hearing transcript, Docket

No. 198 at 38-40.)
Having found that Rule 11 sanctions against Mr. Parker
were warranted, the Court must now determine the nature of the
sanctions.

Rule 11 provides, “A sanction imposed under this

rule must be limited to what suffices to deter repetition of
the conduct or comparable conduct by others similarly
situated.

The sanction may include nonmonetary directives; an

order to pay a penalty into court; or, if imposed on motion
and warranted for effective deterrence, an order directing
payment to the movant of part or all of the reasonable
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attorney's fees and other expenses directly resulting from the
violation.”

Fed. R. Civ. P. 11(c).

Plaintiffs ask for $203,000 in fees and costs, which they
claim they incurred as a result of Mr. Parker’s lack of
reasonable inquiry into Mr. Kapustin’s ability to comply with
the consent order.

In April 2015, when the Court found that

sanctions were warranted against Mr. Parker, the Court did not
use the “wisdom of hindsight” to conclude that Mr. Parker’s
actions in September and October 2014 had been made without
“reasonable inquiry.”

The Court may use, however, the “wisdom

of hindsight” of the past year to inform the nature of the
sanctions to be imposed on Mr. Parker.
Without detailing the myriad of ways, it is clear that
since the inception of this litigation, Kapustin has engaged
in a protracted effort to defeat the legitimate claims of
Plaintiffs, mislead his and Plaintiffs’ counsel, and
cavalierly disregard this Court’s Orders.

Most recently,

Kapustin failed to appear at a Court hearing, without
notifying the Court that he left the country and was in
Germany.

It has also come to the Court’s attention that

during the cessation of operations of the corporate entities
named as defendants here, Kapustin may have resumed his
international automobile fraud scheme under a different
corporate name.
Even though the Court still firmly concludes that Mr.
Parker should have conducted a more meaningful investigation
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into Kapustin’s representation of his assets as a pledge to
satisfy the September 2014 consent order, the manipulative and
fraudulent conduct by Kapustin appears to have spared no
victims, including his attorneys. 4

Mr. Parker certifies that

Kapustin owes him and his firm over $125,000 in fees and costs
associated with his representation of Kapustin in this and
other matters.

That, along with the Court’s on-the-record

sanctioning of Mr. Parker and his obligation to inform the
Minnesota and Oklahoma bars of this Court’s sanction, appears
to suffice “to deter repetition of the conduct or comparable
conduct by others similarly situated.”

Considering what the

Court knows now about Kapustin’s actions, it does not seem
unrealistic that Plaintiffs would have incurred the same or
similar fees and costs from September 2014 even if the consent
order had not been entered into.
Accordingly, the Court finds that the sanctions already
imposed on Mr. Parker satisfy Rule 11’s purpose and are
appropriate under the circumstances of this case.

Plaintiffs’

request for $203,000 in fees and costs as an additional
sanction is not warranted.

The Court reaffirms, however, its

4

Indeed, by email on the Sunday evening before the Tuesday,
December 8, 2015 hearing, at which Kapustin failed to appear
without notice to the Court, Kapustin terminated his most
recent corporate counsel’s representation, claiming that his
counsel was not acting in his best interest. At the hearing,
counsel stated that just a few hours before he received the
email he had spoken with Kapustin, who had not provided him
with any indication that he was dissatisfied with counsel’s
representation. As noted above, counsel has filed a motion to
be relieved as directed by the Court. (See Docket No. 305.)
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admonishment to Mr. Parker about his lack of due diligence
into his client’s ability to satisfy a consent order that
prevented the entry of an injunction that Plaintiffs were
clearly entitled to.
An appropriate Order will be entered.

Date: December 16, 2015
At Camden, New Jersey

s/ Noel L. Hillman _
NOEL L. HILLMAN, U.S.D.J.

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