Van Buskirk et al v. The United Group of Companies, Inc. et al
MEMORANDUM-DECISION and ORDER - That defendants' renewed motion to dismiss (Dkt. Nos. 16, 72) is GRANTED IN PART and DENIED IN PART as follows: GRANTED as to plaintiffs' unjust enrichment claim, which claim is DISMI SSED. DENIED in all other respects. That plaintiffs' motion for leave to amend their second amended complaint (Dkt. No. 67) is GRANTED conditioned upon plaintiffs' payment to defendants' of $7,500.00 within twe nty-one (21) days of this Order. That plaintiffs' failure to comply with this Order as it pertains to the payment of $7,500.00 will result in dismissal without further action of this court. That plaintiffs must filed a third amended compl aint within fourteen (14) days of the date of their payment to defendants' of $7,500.00. That, if a third amended complaint is not filed within fourteen (14) days of said payment, the action will be dismissed without further order of the c ourt. That defendants' must respond to plaintiffs' third amended complaint within the time allotted by the rules. That, in the event plaintiffs timely pay defendants' $7,500.00, plaintiffs timely file a third amended complaint, and defendants timely respond to the third amended complaint, the parties shall contact Magistrate Judge Christian F. Hummel to schedule further proceedings. Signed by Senior Judge Gary L. Sharpe on 1/2/2020. (jel, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
BRUCE A. VAN BUSKIRK et al.,
THE UNITED GROUP OF
COMPANIES, INC. et al.,
FOR THE PLAINTIFFS:
Keller, Rohrback Law Firm
1201 Third Avenue, Suite 3200
Seattle, WA 98101
DAVID J. KO, ESQ.
Keller, Rohrback Law Firm
3101 North Central Avenue,
Phoenix, AZ 85012-2643
GARY GOTTO, ESQ.
RON KILGARD, ESQ.
Devine, Snyder LLP
52 Corporate Circle, Suite 207
Albany, NY 12203
TERENCE J. DEVINE, ESQ.
FOR THE DEFENDANTS:
Cozen, O’Connor Law Firm
45 Broadway Atrium, 16th Floor
New York, NY 10006
Cozen, O’Connor Law Firm
277 Park Avenue, 20th Floor
New York, NY 10172
MATTHEW E. LEWITZ, ESQ.
MICHAEL B. de LEEUW, ESQ.
TAMAR S. WISE, ESQ.
Gary L. Sharpe
Senior District Judge
MEMORANDUM-DECISION AND ORDER
Plaintiffs Bruce A. Van Buskirk and Lori A. Van Buskirk commenced
this action against The United Group of Companies, Inc. (UGOC);
DCG/UGOC Funds Management II, LLC; Michael J. Uccellini and Jessica
F. Steffensen as Executor and Execturix, of the Estate of Walter F.
Uccellini; Michael J. Uccellini (collectively, “United Defendants”); MCM
Securities, LLC; and Millennium Credit Markets, LLC (collectively, “MCM
Defendants”),1 asserting New York State law claims of common law fraud,
breach of fiduciary duty, aiding and abetting a breach of fiduciary duty,
negligent misrepresentation, and unjust enrichment against United
Defendants, as well as aiding and abetting against MCM Defendants.
(See generally 2d Am. Compl., Dkt. No. 11.)
Pending is plaintiffs’ motion for leave to file a third amended
complaint. (Dkt. No. 67.) In response, defendants assert that plaintiffs’
Plaintiffs’ case against Davis Capital Group, Inc. and DCG Funds Management, LLC
(hereinafter “DCG”) has been stayed, (Dkt. No. 41), and Richard W. Davis, Jr. has been
terminated as a defendant, (Dkt. No. 50).
motion should be denied because the proposed amendment would be
futile, and, in the alternative, request that should plaintiffs’ motion be
granted, it be conditioned on the payment of reasonable attorneys’ fees.
(Dkt. No. 72.) In arguing futility, defendants’ incorporate the arguments
made in their motion to dismiss, (Dkt. No. 16), “in their entirety,” (Dkt.
No. 72 at 14). Thus, the court construes Dkt. No. 72 as a renewal of the
motion to dismiss, (Dkt. No. 16), which has been fully briefed by the
parties, (Dkt. Nos. 16, 28, 34). For the reasons that follow, plaintiffs’
motion is granted, conditioned upon the payment to defendants of
reasonable attorneys’ fees in the amount of $7,500.00, and plaintiffs’
claim of unjust enrichment is dismissed.
For a full recitation of the underlying facts, the parties are referred to
the court’s April 9, 2018 order in Grasso v. United Group of Companies,
Inc., No. 1:16-cv-965, 2018 WL 1737619 (N.D.N.Y. Apr. 9, 2018), which is
a related action that involves a nearly identical complaint and nearly
The facts are drawn from plaintiffs’ second amended complaint, (Dkt. No. 11),
presented in the light most favorable to them.
identical motion to dismiss briefing.
Summarily, plaintiffs were investors in an income fund created,
managed, and/or operated by defendants (hereinafter “the Income Fund”).
(2d Am. Compl. ¶¶ 1-8.) In connection with soliciting plaintiffs’
investments in the Income Fund, plaintiffs allege that United Defendants
made several factual misrepresentations, including that the Income Fund
would invest in secure debt instruments backed by real estate assets that
could quickly be converted to cash and would generate a high annual rate
of return for investors when, in reality, United Defendants knew the
student housing projects faced problems—including low
occupancy—which made these returns highly unlikely and risked
non-payment of the fund’s notes receivable. (Id. ¶ 63.) Plaintiffs further
allege that United Defendants and Edgar Page—an investment advisor
who had a substantial stake in the success of the Income Fund and who
advised plaintiffs to invest in it even though he knew the projects were
struggling—failed to disclose several facts that were material to plaintiffs’
investments. (Id. ¶¶ 26-31, 39-40, 47-52, 63.)
Ultimately, “[t]he Income Fund’s assets were not invested in
securities, real estate assets and/or debt instruments secured by assets,
and/or credible guarantors, but rather were used to make unsecured loans
to UGOC [and other related parties].” (Id. ¶ 40.) Additionally, United
Defendants continued to invest fund assets into the struggling student
housing projects, while funneling money to Page. (Id. ¶¶ 43, 45-52.)
Plaintiffs allege that they would not have chosen to invest in the Income
Fund had they known such facts beforehand. (Id. ¶¶ 96, 98.) Now,
“[u]nder the terms of the [O]perating [A]greement governing the [Income]
Fund, [p]laintiffs are unable to liquidate their investment without the
approval of the United Defendants.” (Id. ¶ 98.) Plaintiffs have since
requested a return of their investments, which United Defendants denied.
(Id. ¶ 100.) Plaintiffs assert that their investment in the fund is subject to
rescission and/or monetary damages, because it was “procured through
unlawful conduct.” (Id. ¶ 101.)
Plaintiffs filed their initial complaint on July 15, 2016, (Compl., Dkt.
No. 1), an amended complaint on August 5, 2016, (Am. Compl., Dkt.
No. 4), and a second amended complaint on August 29, 2016, (2d Am.
Compl.) In all three iterations of their complaint, plaintiffs alleged that they
were residents of Cobleskill, New York, and that all defendants were
citizens of either New York or North Carolina. (Compl. ¶¶ 1-9; Am.
Compl. ¶¶ 1-9; 2d Am. Compl. ¶¶ 1-9.) Defendants moved to dismiss the
case on the merits. (Dkt. No. 16.)
Because plaintiffs’ complaints allege only violations of state law, and
they did not establish complete diversity of citizenship amongst the
parties, the court ordered plaintiffs to show cause as to why the action
should not be dismissed sua sponte pursuant to Federal Rule of Civil
Procedure 12(h)(3) for lack of subject matter jurisdiction. (Dkt. No. 52.)
Plaintiffs submitted a brief response, arguing that the court had diversity
jurisdiction over this case because plaintiffs sold their residence in New
York and now reside in Florida. (Dkt. No. 53.) In support of this
argument, plaintiffs attached as exhibits their Florida drivers licenses,
which were dated December 2016, as well as then-recent mail that was
sent by defendants to plaintiffs at plaintiffs’ Florida residence. (Id.) But
that evidence did not establish that plaintiffs were domiciled in Florida at
the time of the filing of their complaint. Accordingly, the court dismissed
the case for lack of subject matter jurisdiction and entered judgment in
favor of defendants. (Dkt. Nos. 55, 56.)
Plaintiffs moved for reconsideration, attaching to their motion
declarations swearing that they were domiciled in Florida at the time of the
filing of their complaint. (Dkt. No. 57.) This motion was denied because it
was not the appropriate time or manner for the introduction of this
evidence, and because it failed to invoke any of the three grounds upon
which a reconsideration motion may be properly based. (Dkt. No. 60.)
Plaintiffs appealed to the Second Circuit, (Dkt. No. 61), which
reversed the court’s decision, holding:
[W]e vacate the judgment of the district court and
remand so that [p]laintiffs may amend their complaint
and so that the district court may determine whether
the evidence provided by [p]laintiffs—as a whole—is
sufficient to invoke federal diversity jurisdiction. On
remand, the district court may also consider whether
an award of costs to [d]efendants—including
attorney’s fees—would mitigate the prejudice
incurred by [d]efendants through this late
Van Buskirk v. United Group of Companies, 935 F.3d 49, 56 (2d Cir.
2019) (citation omitted). The Second Circuit noted that “the parties shall
bear their own costs on appeal.” Id.
Plaintiffs then filed the pending motion, seeking leave to amend their
complaint for a third time. (Dkt. No. 67.) In compliance with the Local
Rules of Practice in this District, plaintiffs attached as an exhibit to their
motion a redlined version of their proposed pleading, showing the
changes between their proposed amended complaint and the operative
complaint. (Dkt. No. 67, Attach. 1.) The changes plaintiffs seek to make
to their second amended complaint relate to the domiciles of the parties,
in an apparent effort to cure the previously noted jurisdictional defect.
(Id.) In response, defendants argue that leave to amend should not be
granted because any amendment would be futile, but that, if it is to be
granted, they should be awarded $38,371.91 in attorneys’ fees and costs.
(Dkt. No. 72.)
III. Standards of Review
Motion for Leave to Amend
As relevant here, Fed. R. Civ. P. 15 allows a party not otherwise
permitted to amend its pleading to do so with leave of the court. See Fed.
R. Civ. P. 15(a)(2). The Rule mandates that “[t]he court should freely give
leave when justice so requires.” Id. Barring “futility, undue delay, bad
faith or dilatory motive, repeated failure to cure deficiencies by
amendments previously allowed, or undue prejudice to the non-moving
party,” leave should generally be granted. Burch v. Pioneer Credit
Recovery, Inc., 551 F.3d 122, 126 (2d Cir. 2008). “The non-moving party
bears the burden of establishing why leave to amend should not be
granted.” Linares v. Richards, No. 08-CV-3243, 2009 WL 2386083, at *9
(E.D.N.Y. Aug. 3, 2009) (citations omitted).
Motion to Dismiss
The standard of review under Fed. R. Civ. P. 12(b)(6) is well settled
and will not be repeated here. For a full discussion of the standard, the
court refers the parties to its prior decision in Ellis v. Cohen & Slamowitz,
LLP, 701 F. Supp. 2d 215, 218 (N.D.N.Y. 2010).
Plaintiffs’ Motion for Leave to Amend
Plaintiffs seek to amend their complaint to cure the jurisdictional
defect that exists in the previous three iterations of their complaint. (Dkt.
No. 67.) Specifically, plaintiffs seek to amend their complaint to add that
plaintiffs have been domiciled in Florida since May 2013, and that each
defendant is either domiciled in New York, North Carolina, or Delaware;
and not Florida. (Dkt. No. 67, Attach. 1 ¶¶ 1-9.)
Defendants argue that leave to amend should be denied, because
permitting a third amendment would be futile. (Dkt. No. 72 at 14-21.)
Prejudice that defendants would allegedly face from the grant of plaintiffs’
leave to amend, although not affirmatively argued, was also a theme in
their response. (Id. at 2, 4). For the reasons that follow, defendants have
not offered sufficient justification for denying plaintiffs’ motion for leave to
amend their second amended complaint.
First, “courts have recognized that prejudice may well be the most
important consideration when deciding a motion to amend.” Lin v. Toyo
Food, Inc., No. 12-CV-7392, 2016 WL 4502040, at *2 (S.D.N.Y. Aug. 26,
2016). In deciding the prejudice question, courts should consider whether
the amendment would “(i) require the opponent to expend significant
additional resources to conduct discovery and prepare for trial;
(ii) significantly delay the resolution of the dispute; or (iii) prevent the
plaintiff from bringing a timely action in another jurisdiction.” See
Monahan v. N.Y.C. Dep’t of Corr., 214 F.3d 275, 284 (2d Cir. 2000).
Bearing on these factors is “[t]he procedural posture of a case, including
the stage of discovery and whether dispositive motions have been filed.”
A.V.E.L.A., Inc. v. Estate of Monroe, 34 F. Supp. 3d 311, 317 (S.D.N.Y.
The court is mindful that defendants will suffer some prejudice by a
grant of the motion for leave to amend. Indeed, plaintiffs had numerous
chances to show that the court had jurisdiction over the case, and the
evidence that ultimately proves complete diversity of citizenship amongst
the parties was available well before they submitted it. However, even
though this action commenced more than three years ago, the litigation is
still in its early stages given that an answer has not been filed and
discovery has not yet commenced. Accordingly, the amendment
itself—which merely establishes subject matter jurisdiction—will not force
defendants to expend significant additional resources to conduct
discovery and prepare for trial, and will not further delay the resolution of
A proposed amendment is considered futile if it “would fail to cure
prior deficiencies or to state a claim under Rule 12(b)(6) of the Federal
Rules of Civil Procedure.” Panther Partners Inc. v. Ikanos Comms, Inc.,
681 F.3d 114, 119 (2d Cir. 2012) (citation omitted). The amendment
As noted below, in order to offset any prejudice defendants will suffer from the court
granting the pending motion, they will be reimbursed, in part, for the additional resources they
were forced to expend as a result of plaintiffs’ failure to cure their jurisdictional defect at the
should be denied as futile only “if it appears beyond doubt that the plaintiff
can plead no set of facts that would entitle him to relief.” Milanese v.
Rust-Oleum Corp., 244 F.3d 104, 110 (2d Cir. 2001). Accordingly, “the
standard for denying leave to amend based on futility is the same as the
standard for granting a motion to dismiss.” IBEW Local Union No. 58,
Pension Trust Fund & Annuity Fund v. Royal Bank of Scotland Group,
PLC, 783 F.3d 383, 389 (2d Cir. 2015). In making this decision, courts
must “consider the proposed amendments along with the remainder of the
complaint, accept as true all non-conclusory factual allegations therein,
and draw all reasonable inferences in plaintiff’s favor.” Panther Partners,
681 F.3d at 119 (internal quotation marks, citations, and alterations
Here, plaintiffs’ case was dismissed sua sponte because the first
three iterations of plaintiffs’ complaint did not adequately allege subject
matter jurisdiction. (Dkt. Nos. 52-63.) Plaintiffs’ proposed amendment
cures this prior defect by adequately alleging there was complete diversity
of citizenship amongst the parties at the time of the filing of the initial
complaint. (Dkt. No. 67, Attach. 1 at 2-4.)
Defendants argue that granting plaintiffs’ leave to amend would be
futile because plaintiffs’ claims “fail as a matter of law.” (Dkt. No. 72
at 14.) Defendants’ arguments are not new. In their response to the
pending motion, they incorporate the arguments made in their motion to
dismiss “in their entirety.” (Dkt. No. 72 at 14.) Although defendants’
motion to dismiss was denied as moot, (Dkt. No. 55), and thus—contrary
to their assertion, (Dkt. No. 72 at 8, 21)—is not pending before the court,
the motion has been fully briefed, (Dkt. Nos. 16, 28, 34), and defendants’
futility arguments require the court to resolve certain issues discussed
therein. Moreover, the court has already addressed substantially the
same issues in Grasso.
First, unlike the plaintiffs’ claims of fraud as to certain investments at
issue in Grasso, plaintiffs claims here were filed within the statute of
limitations period. According to N.Y. C.P.L.R. § 213(8), the statute of
limitations for fraud is the greater of either six years from when the cause
of action accrued or two years from the time a plaintiff discovered the
fraud or could have discovered it with reasonable diligence.4 Plaintiffs’
This same statute of limitations framework applies to plaintiffs’ claims of breach of
fiduciary duty, aiding and abetting a breach of fiduciary duty, and negligent misrepresentation,
which all sound in fraud. See Ajamian v. Zakarian, No. 1:14-CV-321, 2014 WL 4247784, at *8
(N.D.N.Y. Aug. 26, 2014); Gonzalski v. Prudential Ins. Co. of Am., No: 5:02-CV-921, 2004 WL
556686, at *1 n.6 (N.D.N.Y. Mar. 22, 2004).
claims accrued at the moment of their investments. See Grasso, 2018
WL 1737619, at *7. Because they executed the subscription agreements
on August 18, 2010, and filed their complaint on July 15, 2016, plaintiffs’
claims of fraud, including their claims of breach of fiduciary duty, aiding
and abetting a breach of fiduciary duty, and negligent misrepresentation,
On the other hand, plaintiffs’ claim of unjust enrichment is time
barred. Under New York law, the statute of limitations applicable to an
unjust enrichment claim is “six years where plaintiff seeks an equitable
remedy, but three years where plaintiff seeks monetary damages.”
Matana v. Merkin, 957 F. Supp. 2d 473, 494 (S.D.N.Y. 2013) (citing
Ingrami v. Rovner, 45 A.D.3d 806, 808 (2d Dep’t 2007)). Here, plaintiffs
seek “restitution of the losses sustained by [p]laintiffs from their
investment in the Income Fund.” (2d Am. Compl. ¶ 132.) Plaintiffs argue
that the six-year statute of limitations is applicable, (Dkt. No. 28 at 40-41),
while United Defendants claim the three-year period applies, (Dkt. No. 16,
Attach. 1 at 14). Because plaintiffs effectively seek compensatory
monetary damages and not equitable relief, the three-year statute of
limitations governs plaintiffs’ claim of unjust enrichment. See
Ruzhinskaya v. Healthport Tech., LLC, 311 F.R.D. 87, 109 (S.D.N.Y.
2015) (citing Access Point Med., LLC v. Mandell, 106 A.D.3d 40 (1st
Dep’t 2013)); Grynberg v. Eni S.p.A., No. 06 Civ. 6495, 2007 WL
2584727, at *3 (S.D.N.Y. Sept. 5, 2007) (citing, inter alia, Lambert v.
Skylar, 817 A.D.3d 564, 565 (2d Dep’t 2006)).
Generally, the three-year period begins to run “upon the occurrence
of the wrongful act giving rise to a duty of restitution and not from the time
the facts constituting the fraud are discovered.” Cohen v. S.A.C. Trading
Corp., 711 F.3d 353, 364 (2d Cir. 2003) (quoting Coombs v. Jervier, 74
A.D.3d 724, 724 (2d Dep’t 2010)). Plaintiffs argue that the period did not
begin to run until “[United] Defendants denied plaintiffs’ demand to refund
their investments,” shortly before they filed their complaint, because the
limitations period for claims “arising out of a fiduciary relationship does not
commence until the fiduciary has openly repudiated his or her obligation
or the relationship has been otherwise terminated.” (Dkt. No. 28 at 40-41
(quoting Golden Pac. Bancorp. v. F.D.I.C., 273 F.3d 509, 518-19 (2d Cir.
2001)) (internal quotation marks omitted).) But this doctrine “only applies
to a plaintiff seeking equitable relief, not one seeking monetary damages.”
Spinnato v. Unity of Omaha Life Ins. Co., 322 F. Supp.3d 377, 398
(E.D.N.Y. 2018) (citation omitted).
Thus, the three-year period began to run on August 18, 2010 when
plaintiffs executed the subscription agreements. Because plaintiffs did not
bring their unjust enrichment claim until July 15, 2016, the claim is
In any event, even if plaintiffs’ claim was timely, plaintiffs’ unjust
enrichment claim fails on the merits for the same reasons set forth in
Grasso, 2018 WL 1737619, at *9 (Dkt. No. 56 at 26-27, 1:16-cv-965). “To
prevail on a claim for unjust enrichment in New York, a plaintiff must
establish 1) that the defendant benefitted; 2) at the plaintiff’s expense; and
3) that equity and good conscience require restitution.” Kaye v.
Grossman, 202 F.3d 611, 616 (2d Cir. 2000) (internal quotation marks
and citation omitted). United Defendants point out that only the Income
Fund, and not United Defendants themselves, received a benefit. (Dkt.
No. 16, Attach. 1 at 31.) Indeed, the second amended complaint
demonstrates that plaintiffs executed subscription agreements with the
Income Fund for the acquisition of membership interests in the fund in
exchange for money. (2d Am. Compl. ¶ 60.)
Plaintiffs do not allege, and defendants do not argue, that the
subscription agreements are invalid or unenforceable. It is well-settled
under New York law that “[t]he theory of unjust enrichment lies as a
quasi-contract claim. It is an obligation imposed by equity to prevent
injustice, in the absence of an actual agreement between the parties
concerned.” IDT Corp. v. Morgan Stanley Dean Witter & Co., 12 N.Y.3d
132, 142 (2009) (internal quotation marks and citation omitted); see
Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 388 (1987)
(“The existence of a valid and enforceable written contract governing a
particular subject matter ordinarily precludes recovery in quasi contract for
events arising out of the same subject matter[.]”).
Unless the Income Fund obtained plaintiffs’ investments through
fraud, it was entitled to the total amount of investments in accordance with
the subscription agreements that plaintiffs entered into. As such, plaintiffs
have a remedy for money damages by virtue of their fraud claims,
stemming from their written agreement, which precludes an equitable
claim arising out of the same subject matter. See IDT Corp., 12 N.Y.3d
at 142; Clark-Fitzpatrick, Inc., 70 N.Y.2d at 388-89. Accordingly, the
proposed amended complaint fails to state a claim for unjust enrichment,
and that claim is dismissed.
The court has carefully considered defendants’ remaining
arguments and finds them to be without merit. In particular, as the court
explained in Grasso, 2018 WL 1737619, at *9 (Dkt. No. 56 at 27-28, 1:16cv-965), a resolution of defendants’ arguments regarding an agency
relationship between Page and United Defendants, (Dkt. No. 16, Attach. 1
at 15-18), as well as whether United Defendants owed plaintiffs a fiduciary
duty, (id. at 27-29), or maintained some other type of “privity-like”
relationship, (id. at 30), require a more fact-specific inquiry that cannot be
conducted at this stage, before discovery has commenced. Thus, the
remainder of plaintiffs’ claims survive the motion to dismiss.
It stands to reason that, if even one of plaintiffs’ claims can survive a
motion to dismiss, then plaintiffs’ proposed amendment, which would
merely cure the jurisdictional defect that existed in the previous three
iterations, is not futile. Here, as discussed, although some of defendants’
arguments have merit, and plaintiffs’ unjust enrichment claim is hereby
dismissed, plaintiffs’ remaining claims are sufficient to survive the motion
to dismiss. Defendants are free to renew their arguments after discovery.
Accordingly, plaintiffs’ motion for leave to amend, (Dkt. No. 67), is
Defendants’ Request for Attorneys’ Fees and Costs
Generally, the so-called “American Rule” mandates “each party to
bear his own litigation expenses, including attorney’s fees, regardless
whether he wins or loses.” Fox v. Vice, 563 U.S. 826, 832 (2011) (citation
omitted). However, the court has inherent power to “use its discretion to
impose conditions on the grant of leave to amend.” I.C. v. Delta Galil
USA, No. 1:14-cv-7289, 2016 WL 6208561, at *2 (S.D.N.Y. Oct. 24, 2016)
(citations omitted). And it is well settled that an award of attorneys’ fees
and costs for the non-moving party is a condition that the court may
impose. See, e.g., Combustion Prods. Mgmt, Inc. v. AES Corp.,
No. 5:05-CV-00929, 2006 WL 6816644, at *8 (N.D.N.Y. Jun. 27, 2006)
(“When granting leave to amend, courts have discretion to impose
reasonable conditions, including the imposition of attorney’s fees, in order
to address prejudice that the opposing party will suffer as a result of the
amendment.”); Hayden v. Feldman, 159 F.R.D. 452, 454-55 (S.D.N.Y.
1995) (awarding fees to defendant who “would not have been put to the
expense of moving to dismiss the faulty Third Amended Complaint had
plaintiffs filed a proper complaint at the outset”).
Indeed, “[a]warding attorneys’ fees as a condition of granting leave
to amend provides a means to ‘mitigate the additional expenses that
[defendants] . . . incurred . . . attributable to plaintiff’s counsel’s failure to
plead his client’s case properly.’” Diego Beekman Mutual Housing Assoc.
Dev. Fund Corp. Hdfc v. Dish Network, L.L.C., No. 15 Civ. 1094, 2016 WL
1060328, at *8 (S.D.N.Y. Mar. 15, 2016) (quoting Glob. Energy & Mgmt.,
LLC v. Xethanol Corp., No. 07 Civ. 11049, 2009 WL 464449, at *4
(S.D.N.Y. Feb. 24, 2009)).
Defendants request $3,707.50 in attorneys’ fees for legal work
related to plaintiffs’ response to the court’s order to show cause;
$1,485.00 in attorneys’ fees for legal work related to opposing plaintiffs’
motion for reconsideration; $27,642.41 in attorneys’ fees and costs for
legal work related to opposing plaintiffs’ appeal to the Second Circuit; and
$5,537.00 in attorneys’ fees for legal work related to opposing the pending
motion. (Dkt. No. 72 at 12.) Defendants supplemented their response to
plaintiffs’ motion for leave to amend with an attorney declaration and
various invoices and other attorney billing records which are attached as
exhibits to the declaration. (Dkt. No. 73.) The declaration and its exhibits
establish that defendants actually incurred the amounts of attorneys’ fees
and costs requested for all categories of fees and costs except for those
incurred by responding to the pending motion. (Id.)
Defendants’ request is effectively a request for sanctions vis-à-vis
attorneys’ fees, and not a request for an award of fees in the general
sense. As previously noted, in remanding this case back to this court, the
Second Circuit expressly noted that an award of attorneys’ fees may
“mitigate the prejudice incurred by [d]efendants” as a result of plaintiffs’
“failure to provide the district court with all relevant evidence at the time of
the order to show cause.” Van Buskirk, 935 F.3d at 52, 56. Defendants
incurred significant costs as a direct result of plaintiffs’ slipshod response
to the court’s order to show cause. The evidence that ultimately proved
the existence of complete diversity was available to plaintiffs’ throughout
the litigation, and it was only until their motion for reconsideration—after
filing three iterations of the complaint and responding to an order to show
cause on this exact issue—where they provided it to the court.
Accordingly, based on the aforementioned case law which shows
that courts within the Second Circuit commonly award attorneys’ fees and
costs to offset prejudice in similar situations, defendants’ are entitled to
the reasonable attorneys’ fees incurred in litigating the jurisdictional
dispute in this court, as well as those incurred in responding to plaintiffs’
appeal to the Second Circuit. Plaintiffs’ argument that defendants are not
entitled to fees associated with the appeal because they were not the
prevailing party, (Dkt. No. 76 at 4-5), is misplaced. Here, in deciding
whether a grant of leave to amend should be conditioned on the payment
of attorneys’ fees, the inquiry is: which expenses would not have been
incurred had plaintiffs’ cured their jurisdictional defect in the first instance?
It is clear that defendants would not have incurred fees from responding to
plaintiffs’ appeal to the Second Circuit had plaintiffs cured their
jurisdictional defect when given the opportunity, because, in that case, the
appeal would not have been necessary.
Defendants are not entitled to the $6,233.41 in costs associated with
their appeal to the Second Circuit, however. See Van Buskirk, 935 F.3d
at 56 (“[T]he parties shall bear their own costs on appeal.”). Additionally,
defendants are not entitled to the attorneys’ fees incurred by responding
to the pending motion. The court has reviewed the attorney declaration
and all billing records and other materials submitted with defendants’
response to the pending motion, and did not find any support with regard
to defendants’ request for attorneys’ fees incurred by responding to such
motion. (Dkt. No. 73.) Defendants have not even informed the court how
many hours were expended in responding to the motion, (Dkt. Nos. 72,
73), and that information is essential for the court to determine the
reasonableness of the requested fees.
Turning to the question of what is an appropriate sanction vis-à-vis
attorneys’ fees, courts use the lodestar method—the product of a
reasonable hourly rate and the hours reasonably spent on the case. See
Millea v. Metro–North R.R. Co., 658 F.3d 154, 166 (2d Cir. 2011); Miller v.
City of Ithaca, No. 3:10-cv-597, 2017 WL 61947, at *2 (N.D.N.Y. Jan. 5,
2017). Generally, the district court relies on the prevailing hourly rate from
the district in which it sits in calculating the lodestar. See Arbor Hill
Concerned Citizens Neighborhood Ass'n v. Cty. of Albany & Albany Cty.
Bd. of Elections, 522 F.3d 182, 191 (2d Cir. 2008). However, “a district
court may use . . . some rate in between the out-of-district rate sought and
the rates charged by local attorneys . . . in calculating the presumptively
reasonable fee if it is clear that a reasonable, paying client would have
paid those higher rates.” Id.; see Bergerson v. N.Y. State Office of Mental
Health, 652 F.3d 277, 289–90 (2d Cir. 2011). In determining what a
reasonable client would be willing to pay, the court considers several
the complexity and difficulty of the case, the
available expertise and capacity of the client’s other
counsel (if any), the resources required to prosecute
the case effectively (taking account of the resources
being marshaled on the other side but not endorsing
scorched earth tactics), the timing demands of the
case, whether an attorney might have an interest
(independent of that of his client) in achieving the
ends of the litigation or might initiate the
representation himself, ... and other returns (such as
reputation, etc.) that an attorney might expect from
Arbor Hill, 522 F.3d at 184.
The four Cozen, O’Connor attorneys involved in this case are not
local attorneys, but based in New York City. (Dkt. No. 72 at 21.)
According to defendants’ attorney declaration, Michael de Leeuw, a
shareholder with twenty-two years of experience, spent 4.6 hours working
on the case at a rate of $675 per hour; Tamar Wise, a member with
eleven years of experience spent 25.1 hours at a rate of $550 per hour;
Matthew Lewitz, an associate with seven years of experience, spent 16.1
hours at a rate of $435 per hour; and James Castle, an associate with four
years of experience, spent 8.3 hours at a rate of $360 per hour. (Dkt. 73
at 7.) This amounts to $26,901.50 in attorneys’ fees, which appropriately
does not include costs associated with defendants’ response to plaintiffs’
appeal to the Second Circuit, or attorneys’ fees associated with
responding to the pending motion.
Defendants argue that using their out-of-district rates to calculate
reasonable attorneys’ fees here is appropriate given the relatively complex
nature of the case, (Dkt. No. 72 at 13), but there are a number of indistrict firms that are well-equipped to handle this case at in-district rates.
However, given the particularized showing of defendants’ attorneys’
expertise, (Dkt. No. 76 at 3-6), the length of time spent on the case, (id.
at 7), the detailed-billing records submitted by defendants, (Dkt. No. 73,
Attachs. 2-4), the severe business consequences defendants face, and
the fact that the clients consented to the New York City rates during the
course of the litigation, (Dkt. No. 72 at 13), an award of attorneys’ fees at
the higher end of the prevailing district rate is reasonable.
As such, the court adopts the following rates that reflects the court’s
estimate, based on its overall sense of the suit, of the presumptively
reasonable rate for each attorney presented by defendants: (1) Michael
de Leeuw: 4.6 hours at $450 per hour; (2) Tamar Wise: 25.1 hours at
$400 per hour; (3) Matthew Lewitz: 16.1 hours at $280 per hour; and
(4) James Castle: 8.3 hours at $280 per hour. See Universal Instruments
Corp. v. Micro Sys. Engineering, Inc., No. 3:13-cv-831, 2018 WL
2604817, at *3 (N.D.N.Y. Jun. 4, 2018). This amounts to $18,942 in
A district court also has discretion to further reduce the requested
fees “as a practical means of trimming fat from a fee application.”
McDonald ex rel. Prendergast v. Pension Plan of the NYSA–ILA Pension
Tr. Fund, 450 F.3d 91, 96 (2d Cir. 2006) (internal quotation marks and
citation omitted). In determining the appropriate fee, district courts have
substantial deference and may use estimates based on their overall sense
of a suit. See Fox, 563 U.S. at 838. The court has carefully reviewed the
record and has considered all of the facts and arguments put forth by all
parties, and in its discretion finds that an appropriate award of attorneys’
fees in this case is $7,500.00. While it is true that plaintiffs delayed the
resolution of the case by not adequately alleging complete diversity even
after the court brought the issue to their attention, there is no indication
that the delay was purposeful, that they had any intent to deceive the
court, or that they participated in any other sanctionable conduct.
Accordingly, plaintiffs’ leave to file a third amended complaint is
conditioned upon their payment to defendants of $7,500.00, representing
a portion of the attorneys’ fees incurred by defendants from responding to
the court’s order to show cause, plaintiffs’ motion for reconsideration, and
plaintiffs’ appeal to the Second Circuit.
WHEREFORE, for the foregoing reasons, it is hereby
ORDERED that defendants’ renewed motion to dismiss (Dkt.
Nos. 16, 72) is GRANTED IN PART and DENIED IN PART as follows:
GRANTED as to plaintiffs’ unjust enrichment claim, which
claim is DISMISSED; and
DENIED in all other respects; and it is further
ORDERED that plaintiffs’ motion for leave to amend their second
amended complaint (Dkt. No. 67) is GRANTED conditioned upon
plaintiffs’ payment to defendants’ of $7,500.00 within twenty-one (21) days
of this Order; and it is further
ORDERED that plaintiffs’ failure to comply with this Order as it
pertains to the payment of $7,500.00 will result in dismissal without further
action of the court; and it is further
ORDERED that plaintiffs must file a third amended complaint within
fourteen (14) days of the date of their payment to defendants’ of
$7,500.00; and it is further
ORDERED that, if a third amended complaint is not filed within
fourteen (14) days of said payment, the action will be dismissed without
further order of the court; and it is further
ORDERED that defendants’ must respond to plaintiffs’ third
amended complaint within the time allotted by the rules; and it is further
ORDERED that, in the event that plaintiffs timely pay defendants’
$7,500.00, plaintiffs timely file a third amended complaint, and defendants
timely respond to the third amended complaint, the parties shall contact
Magistrate Judge Christian F. Hummel to schedule further proceedings;
and it is further
ORDERED that the Clerk provide a copy of this MemorandumDecision and Order to the parties.
IT IS SO ORDERED.
January 2, 2020
Albany, New York
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