Universitas Education, LLC v. Nova Group, Inc.

Filing 295

MEMORANDUM ORDER ADOPTING REPORT AND RECOMMENDATION terminating (173) Motion for Sanctions in case 1:11-cv-01590-LTS-HBP; terminating (115) Motion for Sanctions in case 1:11-cv-08726-LTS. For the foregoing reasons, the Report is hereby adopted in its entirety. Nova is ordered to deposit the judgment amount, $30,181,880.30, with the Clerk of the Court by October 4, 2013. Nova is further ordered to pay reasonable attorney's fees and costs that Universitas incurred in filing and litigating this motion for sanctions. Universitas must file its application for such fees and costs, with detailed contemporaneous billing records, by October 28, 2013. Any objections must be filed fourteen days from the date the application is filed and any reply must be filed seven days from the date any objection is filed. Nova is hereby prohibited from filing any further motions in these cases (other than a motion seeking permission to file a specific motion) without prior permission from the Court. Mr. Robinson is ordered to pay Universitas' reasonable attorney's fees incurred in defending the motion to dismiss for lack of subject matter jurisdiction. Universitas must file its application for such fees and costs, with detailed contemporaneous billing records, by October 28, 2013. Any objections must be filed fourteen days from the date the application is filed and any reply must be filed seven days from the date any objection is filed. The Report constitutes a written reprimand of Mr. Robinson for the conduct described therein. This Order resolves docket entry no. 173 in case no. 11 Civ. 1590 and docket entry no. 115 in case no. 11 Civ. 8726. (Signed by Judge Laura Taylor Swain on 9/30/2013) Filed In Associated Cases: 1:11-cv-01590-LTS-HBP, 1:11-cv-08726-LTS(ja) Modified on 10/1/2013 (ja).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------x
UNIVERSITAS EDUCATION, LLC,
Petitioner,
-v-

No. 11 Civ. 1590 (LTS)(HBP)

NOVA GROUP, INC.,
Respondent.
-------------------------------------------------------x
NOVA GROUP, INC.,
Petitioner,
-v-

No. 11 Civ. 8726 (LTS)(HBP)

UNIVERSITAS EDUCATION, LLC,
Respondent.
-------------------------------------------------------x
MEMORANDUM ORDER ADOPTING REPORT AND RECOMMENDATION
On May 21, 2013, Magistrate Judge Henry Pitman issued a thorough and well
reasoned Report and Recommendation (docket entry no. 252,1 the “Report”) regarding the
motion of Universitas Education, LLC (“Universitas”), pursuant to Federal Rule of Civil
Procedure 11 for sanctions against Nova Group, Inc. (“Nova”), and its attorney Jack E.
Robinson, III, Esq., for conduct during litigation of a renewed motion to dismiss both of the
above captioned cases for lack of subject matter jurisdiction. (Docket entry no. 152.) The

1

All docket references herein refer to those in the above captioned case numbered 11
Civ. 1590.

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Report recommends that Universitas’ motion be granted with respect to both Nova and Mr.
Robinson.
Timely objections to the Report were filed by both Nova and Mr. Robinson.
Universitas filed responses to these objections. The Court has reviewed thoroughly these
submissions. The relevant facts are set forth in the Report.
The Report recommends that Nova be sanctioned by being required to deposit the
judgment amount, $30,181,880.30, with the Court; by being required to pay Universitas’
reasonable attorney’s fees incurred in bringing the motion for sanctions; and by being prohibited
from filing further motions in these actions without prior court approval. The Report further
recommends that Mr. Robinson be sanctioned by being required to pay Universitas’ reasonable
attorney’s fees incurred in opposing the amended motion to dismiss, and that the Report serve as
a written reprimand of Mr. Robinson.
In reviewing a report and recommendation, a district court “may accept, reject, or
modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28
U.S.C.S. § 636(b)(1) (LexisNexis 2012). In order to accept those portions of the Report to
which no timely objection has been made, “a district court need only satisfy itself that there is no
clear error on the face of the record.” Carlson v. Dep't of Justice, No. 10 Civ. 5149, 2012 WL
928124, at *1 (S.D.N.Y. Mar. 19, 2012) (citation omitted). Where specific objections are made,
the Court must make a de novo determination as to those aspects of the report. United States v.
Male Juvenile, 121 F.3d 34, 38 (2d Cir.1997). “When a party makes only conclusory or general
objections, or simply reiterates his original arguments, the Court reviews the Report only for
clear error.” Kozlow v. Horn, No. 09 Civ. 6597 (LTS)(RLE), 2012 WL 2914338, at *1
(S.D.N.Y. July 17, 2012) (citing Camardo v. General Motors Hourly-Rate Employees Pension
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Plan, 806 F.Supp. 380, 382 (W.D.N.Y. 1992) (court need not consider objections which are
frivolous, conclusory, or general, and which constitute a rehashing of the same arguments and
positions taken in original pleadings)). Any objections must be both specific and clearly aimed
at particular findings by the magistrate judge so that no party is allowed a “second bite at the
apple” by simply relitigating a prior argument. Camardo, 806 F. Supp. at 382 (citation omitted).
Although many of the objections filed by Nova and Mr. Robinson are repetitive
or at least border on the frivolous, the Court has examined de novo each of the issues discussed
below and has reviewed the remaining aspects of the Report for clear error.
In his objection, Mr. Robinson raises the specious argument that the Report is a
nullity because Judge Pitman did not have authority to submit a report and recommendation to
this Court regarding the sanctions because no formal referral had been made. A district judge
“may . . . designate a magistrate judge to conduct hearings, including evidentiary hearings, and
to submit to a judge of the court proposed findings of fact and recommendations” for the
disposition of civil motions. 28 U.S.C.S. § 636(b)(1)(B), (C) (LexisNexis 2012). However, such
a designation need not be written. See United States v. B & D Vending, Inc., 398 F.3d 728, 732
(6th Cir. 2004) (“The statute does not demand that a formal referral order be filed.”); United
States v. Clark, No. 06 MC 67, 2007 WL 5462413, at*4 (D. Conn. Sept. 25, 2007), adopted, 574
F. Supp. 2d 262 (D. Conn. 2008) (same). For clarity and the avoidance of any doubt, the Court
hereby refers the sanctions motion, nunc pro tunc to May 21, 2013, to Judge Pitman for report
and recommendation. Further, as Universitas notes, the report and recommendation process does
not prejudice Mr. Robinson as it gives him the right to object to any conclusions and
recommendations made by the magistrate, and the opportunity to obtain de novo review.
Mr. Robinson additionally argues that the Report improperly relies on hindsight
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in judging his alleged sanctionable behavior. A court must review behavior from the perspective
of what would have been “objectively reasonable,” given the circumstances at the time the
signed court submission at issue was made in determining whether the submission is
sanctionable under Rule 11. Ipcon Collections LLC v. Costco Wholesale Corp., 698 F.3d 58, 64
(2d Cir. 2012). Generally speaking, a court should not rely upon facts unavailable to the parties
at the time of the sanctionable conduct. See United States v. Int'l Bhd. of Teamsters, Chauffeurs,
Warehousemen & Helpers of Am., AFL-CIO, 948 F.2d 1338, 1344 (2d Cir. 1991). In his motion
to dismiss these cases, Mr. Robinson had argued that the court must consider the citizenship of
the trust, Charter Oak Trust, in addition to Nova’s citizenship to determine if it had diversity
jurisdiction. In taking this position, Mr. Robinson argued that the longstanding rule that a trustee
may sue on its own behalf had been overturned by the case Carden v. Arkoma Associates. 494
U.S. 185, 191-92 (1990). This Court denied the motion summarily, as baseless. The Second
Circuit denied the subsequently-filed appeal summarily as well, holding that Mr. Robinson’s
argument was foreclosed by a more than 30-year old decision of the Supreme Court, Navarro
Savings Association v. Lee, 446 U.S. 458 (1980). Universitas Educ., LLC v. Nova Grp., Inc.,
No. 12-3504, 513 F. App'x 62, 64 (2d Cir. 2013). Clearly, no hindsight was involved.2 The

2

In his objection to the Report, Mr. Robinson continues to cite cases that have no
relevance to whether his motion was frivolous. These cases deal with the
citizenship of a trust that brings suit in its own name. See Mills 2011 LLC v.
Synovus Bank, 921 F. Supp. 2d 219, 225 (S.D.N.Y. 2013) (holding trusts was a
citizen in each state that a trustee was citizen for diversity purposes); Bergeron ex
rel. Ridgewood Elec. Power Trust V v. Ridgewood Elec. Power Trust V, 07 Civ.
10622, 2007 WL 1959209, *3 (D. Mass. July 5, 2007) (same). Since Charter Oak
Trust, for which Nova serves as trustee, was not then and never has been a party to
the instant cases, these cases have no relevance. To the contrary, citation of these
cases evidences the motivation for other sanctionable conduct, that Mr. Robinson
added Charter Oak Trust to the signature blocks of the papers in support of his
motion to dismiss in an apparent attempt to create the appearance that the trust was
a named party in this action. (See Report at pgs. 24-26.)

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Circuit’s opinion and the Supreme Court precedent cited therein demonstrate that Mr. Robinson
knew or should have known that his argument had no basis in law. Thus when the Second
Circuit agreed with the order of this Court, id. at 63, which held that “Nova’s motion [was]
wholly without merit” (docket entry no. 161), it served only as further indication that the motion
was frivolous and designed solely for an improper purpose at the time it was filed. The Report’s
reliance on the Second Circuit’s summary opinion in recommending sanctions was not a
judgment based on hindsight.
The Report also identifies further evidence that Mr. Robinson knew of the
sanctionable nature of Nova’s motion. For example, Judge Pitman warned Nova and Mr.
Robinson that the motion was based on a reversal of Nova’s earlier position on the issue of
subject matter jurisdiction that conveniently happened only after Nova had lost its case on the
merits. (Hr'g Tr. Sept. 19, 2012. at 7.) This warning should have given Mr. Robinson pause, and
indeed it required that he conduct a thorough investigation into the merits of the motion. See,
e.g., Barlow v. McLeod, 666 F. Supp. 222, 229 (D.D.C. 1986), aff'd, 861 F.2d 303 (D.C. Cir.
1988) (noting that filing complaint after “after discovery had yielded no support for the claims
and after the magistrate had flagged the Rule 11 problem had exacerbated the violation”). After
that warning, Mr. Robinson himself agreed that Nova’s epiphany related to subject matter
jurisdiction after it had lost on the merits “may be relevant to sanctions” (Hr'g Tr. Sept. 19, 2012.
at 7), yet he still pursued the motion.
Mr. Robinson’s bad faith is further evidenced in Nova’s similarly convenient
reversal of position with respect to federal question subject matter jurisdiction, where Nova
asserted in moving to dismiss that ERISA did not preempt Universitas’ state law claims in the
underlying arbitration. Nova had taken precisely the opposite position in two earlier briefs.
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Finally, the Court notes the importance of Nova’s prior counsel’s withdrawal of a
motion to dismiss for lack of subject matter jurisdiction, under a Rule 11 notice filed by
Universitas which questioned the frivolous nature of the pleading. The earlier motion raised the
same arguments as the motion that Mr. Robinson filed. This Court warned Nova, and Mr.
Robinson, of the potential penalties if it pursued the motion. The fact that Mr. Robinson knew or
should have known of all of these facts, and the legal frivolousness of his motion before he
signed it, indicates that his re-filing of the motion to dismiss was in bad faith and with a motive
to delay, harass, or needlessly increase the cost of litigation.
The Court notes the inevitable risk that imposing sanctions in a suit may have a
chilling effect on future litigation. See, e.g., Eastway Const. Corp. v. City of New York, 637 F.
Supp. 558, 583 (E.D.N.Y. 1986), order modified on other grounds and remanded, 821 F.2d 121
(2d Cir. 1987). The behavior at issue here is precisely the sort of conduct that Rule 11 was
designed to chill. Cf. Davis v. Crush, 862 F.2d 84, 92 (6th Cir. 1988) (“[I]mposition of Rule 11
sanctions in the instant case would operate to chill the bringing of facially valid civil rights suits
in federal court, a consequence that Rule 11 was never intended to promote.”). The litigation
behavior deterred here is convenient changes in legal position motivated by a desire to delay and
make more costly, through meritless collateral attack, the collection of a validly entered
judgment.
Mr. Robinson also argues that the Report has “overlook[ed] salient facts from the
record and overstate[s] the situation” regarding his alleged misrepresentation as to whether
Charter Oak Trust was a party in the case. (Robinson Obj. pg. 21.) Mr. Robinson asserts that
Charter Oak Trust has been in the caption of the cases from the outset, and further that he was
new to the case at the time of the filing and thus filed his notice of appearance and subsequent
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documents under both entity names out of prudence. However, he fails to note that on each of
the earlier submissions Nova is identified “as Trustee, Sponsor And Named Fiduciary of the
Charter Oak Trust Welfare Benefit Plan.” (See, e.g., docket entry nos. 4, 34, 46, 52, 145, 152.)
On earlier submissions, before Nova began arguing that Charter Oak Trust’s citizenship
prevented diversity jurisdiction, the previous attorney for Nova signed documents only in Nova's
name. (See, e.g., docket entry nos. 4, 34, 46.) It was only after Nova decided to challenge
subject matter jurisdiction that attorneys for Nova began signing for Charter Oak Trust as well.
(See, e.g., Docket entry nos. 52, 145, 152). When Mr. Robinson signed the motion to dismiss for
lack of subject matter jurisdiction, he signed as attorney for both Nova and Charter Oak Trust.
(Docket entry no. 152.) The Court agrees with Judge Pitman that “the only reasonable
explanation for Mr. Robinson’s actions is that he sought to create a false factual basis for his
argument that citizenship of Charter Oak Trust should be considered for the purposes of diversity
jurisdiction.” (Report at pg. 24.) The Report also points to similar misrepresentations made in
Mr. Robinson’s submissions to the Court of Appeals, which are further evidence that Mr.
Robinson intended to create a false factual basis for his motion to dismiss.
Nova does not raise any objections to the Report's finding that Nova violated Rule
11(b)(1) and (b)(2). Rather, Nova argues that one sanction recommended, the deposit of the
judgment amount with the court, is inappropriate because 1) it is overly broad in scope in that it
is not “limited to what suffices to deter repetition of the conduct,” 2) the sanction is ultra vires
for the Court because it amounts to a court-ordered payment of a judgment, and 3) Nova does
not have the funds to comply with the sanction.
Nova’s first argument is baseless. Nova argues that the actual purpose of the
sanctions is to deter Nova from avoiding payment of the judgment, but the Report clearly
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indicates that the recommended sanctions are designed for deterrence of “the filing of potentially
frivolous and meritless motions in the future.” (Report at pg. 28; see also id. at pg. 29 (“This
sanction will serve as a deterrent from future filing of frivolous motions that are not warranted
by existing law.”)). That the Report notes Nova's motives in filing frivolous and meritless
motions -- preventing collection of the judgment -- is immaterial to the scope of the sanctions.
Rule 11 clearly proscribes the filing of such motions and the proper scope of sanctions under
Rule 11 includes the deterrence of such filings.
Nova’s second contention is equally baseless. Nova argues that the Court does
not have the authority to enter an order to deposit a judgment amount with the Court. However,
a court's authority to order sanctions under Rule 11 is broad. O'Malley v. New York City Transit
Auth., 896 F.2d 704, 709 (2d Cir. 1990) (“District courts are given broad discretion in tailoring
appropriate and reasonable sanctions under rule 11.”). The cases Nova cites, purportedly
constraining the court's authority to enter the sanction, are inapposite as they speak only to the
district court’s authority, under Rule 69 of the Federal Rules of Civil Procedure, to order the
enforcement of judgments. See Koehler v. Bank of Bermuda Ltd., No. M18-302 (CSH), 2005
WL 551115, at *14-15 (S.D.N.Y. Mar. 9, 2005), vacated and remanded, 577 F.3d 497 (2d Cir.
2009) (citing Hilao v. Estate of Marcos, 95 F.3d 848 (9th Cir. 1996)); Aetna Cas. & Sur. Co. v.
Markarian, 114 F.3d 346, 349 (1st Cir. 1997). The recommended sanction is not a means of
enforcing a judgment under Rule 69, but rather a means of deterring the ongoing and dilatory
efforts of Nova. Moreover, the Court finds that this sanction is not inconsistent with Rule 69,
which simply requires that “[a] money judgment [be] enforced by a writ of execution, unless the
court directs otherwise.” Fed. R. Civ. P. 69. The Court agrees with Judge Pitman that this
sanction is appropriate and reasonable to deter Nova from filing frivolous motions designed to
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delay these proceedings.
Finally, Nova's argument that it should not be ordered to make payment of the
judgment amount because it lacks the funds to pay is unavailing because it cannot demonstrate
that Nova cannot again be in possession or control of funds sufficient to pay the judgment
amount. The Circuit has noted that "it lies well within the district court's discretion to temper the
amount to be awarded against an offending attorney by a balancing consideration of his ability to
pay." Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce Factory, Ltd., 682 F.3d 170,
179 (2d Cir. 2012). Nova relies on the Response to Information Subpoena signed by Peter
Goldman, as “Agent of Nova Group, Inc.,” to demonstrate that it has no assets to pay the
judgment amount (docket entry no. 258-2); however, the declaration is insufficient to
demonstrate an inability to pay. It does not offer sufficient information regarding previous
transfers of funds out of Charter Oak Trust, and it is impossible to tell from the response whether
Nova or Charter Oak Trust has, or will have, any causes of action against any entities to which it
apparently transferred millions of dollars in the past. Furthermore, as Universitas points out, it is
unclear from the response whether money could be transferred back to Nova, by its principals, to
satisfy the sanction. The Court finds that the equities favor imposition of the sanction proposed
by the Report.
This Court has reviewed all other objections of the parties and find that they are
conclusory, or raise issues previously argued, and finds no clear error in the Report.
CONCLUSION
For the foregoing reasons, the Report is hereby adopted in its entirety.
Nova is ordered to deposit the judgment amount, $30,181,880.30, with the Clerk
of the Court by October 4, 2013. Nova is further ordered to pay reasonable attorney’s fees and
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costs that Universitas incurred in filing and litigating this motion for sanctions. Universitas must
file its application for such fees and costs, with detailed contemporaneous billing records, by
October 28, 2013. Any objections must be filed fourteen days from the date the application is
filed and any reply must be filed seven days from the date any objection is filed.
Nova is hereby prohibited from filing any further motions in these cases (other
than a motion seeking permission to file a specific motion) without prior permission from the
Court.
Mr. Robinson is ordered to pay Universitas’ reasonable attorney’s fees incurred in
defending the motion to dismiss for lack of subject matter jurisdiction. Universitas must file its
application for such fees and costs, with detailed contemporaneous billing records, by October
28, 2013. Any objections must be filed fourteen days from the date the application is filed and
any reply must be filed seven days from the date any objection is filed. The Report constitutes a
written reprimand of Mr. Robinson for the conduct described therein.
This Order resolves docket entry no. 173 in case no. 11 Civ. 1590 and docket
entry no. 115 in case no. 11 Civ. 8726.
SO ORDERED.

Dated: New York, New York
September 30, 2013
/S
LAURA TAYLOR SWAIN
United States District Judge

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