King et al v. Wang et al

Filing 111

OPINION & ORDER re: 90 MOTION to Strike Document No. 87 Pursuant to Fed. R. Civ. P. Rules 11, 12, and 14 as Frivolous and for Sanctions in the Form of Costs and Attorneys' Fees filed by Yien-Koo King, Kenneth King. For the foregoing reasons, the motion brought by Plaintiff and Third-Party Defendant Y.K. King and Third-Party Defendant Kenneth King to strike or dismiss the Third- Party Complaint is moot. The part of their motion requesting this Court impose sanctions is DENIED. The Clerk of the Court is directed to close this motion (ECF No. 90). SO ORDERED. (Signed by Judge John F. Keenan on 10/31/2018) (anc)

Case 1:09-md-02013-PAC Document 57

Filed 09/30/10 Page 1 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 10/31/2018

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------X
YIEN-KOO KING,
:
UNITED STATES DISTRICT COURT
NORTHWICH INVESTMENTS, LTD.,
:
SOUTHERN DISTRICT OF NEW YORK
and SOON HUAT, INC.,
-----------------------------------------------------------x:
In re FANNIE MAE 2008 SECURITIES
::
08 Civ. 7831 (PAC)
No. 14 Civ.
LITIGATION Plaintiffs,
::
09 MD 2013 (PAC) 7694 (JFK)
:
:
-againstOPINION &
::
OPINION & ORDERORDER
:
-----------------------------------------------------------x
ANDREW WANG, SHOU-KUNG WANG,
:
BAO WU TANG, JIAN BAO GALLERY, :
ANTHONY CHOU, CHEN-MEI LIN, WEI :
ZHENG, YE YONG-QING, YUE DA-JIN,:
HONORABLE PAUL A. CROTTY, United States District Judge:
and JOHN DOES 1-9,
:
:
Defendants.
:
BACKGROUND1
--------------------------------X
ANDREW early years of this decade saw a boom : home financing which was fueled, among
The WANG, individually and
in
d/b/a BAO WU TANG, and
:
SHOU-KUNG WANG, individually
:
other things, by low interest rates and lax credit conditions. New lending instruments, such as
and formerly d/b/a JIAN BAO
:
GALLERY,
:
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
Defendants,
:
Third-Party Plaintiffs, :they took on unmanageable risks on the
kept the boom going. Borrowers played a role too;
:
-againstassumption that the market would continue to rise : that refinancing options would always be
and
:
YIEN-KOO KING, KENNETH KING,
:
available in the future. Lending discipline was lacking in the system. Mortgage originators did
RAYMOND KING, LYNN KING,
:
THE PUBLIC ADMINISTATOR OF
:
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
THE COUNTY OF N.Y. AS TEMPORARY :
ADMINISTATOR TO THE ESTATE OF
:
originators sold their loans into the secondary mortgage market, often as securitized packages
CHI-CHUAN WANG, deceased, and
:
DOES 1-10,
:
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
:
Third-Party Defendants. :
But then the housing bubble burst. In 2006,
--------------------------------X the demand for housing dropped abruptly
and home prices began to fall. In light of the changing housing market, banks modified their
APPEARANCES
FOR PLAINTIFFS YIEN-KOO KING, NORTHWICH INVESTMENTS, LTD.,
lending practices and became unwilling to refinance home mortgages without refinancing. and
SOON HUAT, INC., and THIRD-PARTY DEFENDANTS KENNETH KING,
RAYMOND KING, and LYNN KING:
Sam P. Israel
1
Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
Timothy Savitsky
dated June 22, 2009. ForISRAEL, this Motion, all allegations in the Amended Complaint are taken as true.
SAM P. purposes of P.C.
1

1

FOR DEFENDANTS/THIRD-PARTY PLAINTIFFS ANDREW WANG, SHOU-KUNG
WANG, BAO WU TANG, and JIAN BAO GALLERY:
Carolyn J. Shields
Ying Liu
LIU & SHIELDS LLP
JOHN F. KEENAN, United States District Judge:
Before the Court is a motion by Plaintiff and Third-Party
Defendant Yien-Koo King (“Y.K. King”) and Third-Party Defendant
Kenneth King (collectively, the “Kings”) to strike or dismiss
the Amended Third-Party Complaint and for sanctions pursuant to
Federal Rule of Civil Procedure 11.

The Kings’ request that

this Court strike or dismiss the Third-Party Complaint is moot
since Defendants and Third-Party Plaintiffs Andrew Wang (“A.
Wang”) and Shou-Kung Wang (“S.K. Wang”) (collectively, the
“Wangs”) have voluntarily dismissed the Third-Party Complaint
pursuant to Federal Rule of Civil Procedure 41(a)(1)(A).

For

the reasons that follow, the Kings’ separate request for Rule 11
sanctions is denied.
Factual Background
The Court has already set out a complete statement of facts
in its previous Order resolving the motion for reconsideration
brought by Plaintiffs Y.K. King, Northwich Investments, LTD.
(“Northwich”), and Soon Huat, Inc. (“Soon Huat”). See Yien-Koo
King v. Wang, No. 14 CIV. 7694 (JFK), 2018 WL 1478044, at *1

2

(S.D.N.Y. Mar. 26, 2018).

The Court briefly summarizes the

facts relevant to this motion below.
Chi-Chuan Wang (“C.C. Wang”), deceased, was an artist and
renowned collector of Chinese antiquities.

Plaintiff Y.K. King

is his daughter, and Defendant S.K. Wang is his son.

Defendant

A. Wang is the son of S.K. Wang and the grandson of C.C. Wang.
On September 23, 2014, Y.K. King brought this action -together with Northwich and Soon Huat, companies she owned with
her husband, Kenneth King –- against her brother and his son
over artwork allegedly taken from C.C. Wang’s estate (the
“Estate”) and from Northwich and Soon Huat.
In the Amended Complaint, Y.K. King alleged that S.K. Wang,
while he was working as C.C. Wang’s bookkeeper and assistant,
embezzled paintings from C.C. Wang’s collection.

Y.K. King

further alleged that, in 2003, S.K. Wang secretly moved C.C.
Wang to S.K. Wang’s home in Queens, where S.K. Wang prevented
contact between Y.K. King and C.C. Wang.

Earlier that same

year, Y.K. King had discovered that more artwork was missing;
she alleged that a safe deposit box containing artwork that
belonged to C.C. Wang, Northwich, and Soon Huat had been looted,
and four paintings were missing from C.C. Wang’s apartment.
C.C. Wang died in July 2003.

His death triggered an estate

battle in New York Surrogate’s Court over the legitimacy of C.C.
Wang’s 2003 will which had disinherited Y.K. King and designated
3

A. Wang executor and A. Wang’s father (S.K Wang) and brother
(Stephen Wang) chief beneficiaries.

The Surrogate’s Court

initially required A. Wang to serve as preliminary executor
alongside the Public Administrator of New York County (the
“Public Administrator”).

Y.K. King alleged that A. Wang

exploited this position to orchestrate a scheme by which the
Wang Defendants used their galleries to purchase paintings from
the Estate at deflated prices, which they then resold for
greater amounts abroad.

On April 26, 2016, a jury in

Surrogate’s Court found that C.C. Wang’s 2003 will was procured
by undue influence and fraud.

A. Wang’s fiduciary authority was

revoked, and Y.K. King replaced him as preliminary executrix.
Procedural History
Y.K. King’s Amended Complaint originally asserted eleven
causes of action.

On March 26, 2018, this Court dismissed five

of those causes of action but allowed the following claims to go
forward: a civil RICO claim brought on behalf of the Estate
against A. Wang; a civil RICO claim brought on behalf of the
Estate against S.K. Wang; a conspiracy to violate 18 U.S.C.
§ 1962(d) claim; and state law claims for conversion, common law
fraud and conspiracy to defraud, and breaches of fiduciary duty
and aiding and abetting breaches of fiduciary duty. See Wang,
2018 WL 1478044, at *10.

4

On June 19, 2018, A. Wang and S.K. Wang brought a ThirdParty Complaint (the “TPC”) against Y.K. King, her husband
Kenneth King, their children, Raymond and Lynn King, the Public
Administrator in its capacity as temporary administrator to the
Estate, and Does 1 through 10.

The TPC contained two claims:

(1) a claim against the Kings and Does 1-10 for contribution and
indemnification “for all or part of the Plaintiff’s state law
claims” based on, inter alia, allegations that the Kings -- not
the Wangs -- engaged in “misappropriation and conversion of
property of the Estate” (Third Party Compl. ¶ 17(a) (June 19,
2018), ECF No. 84 [hereinafter “TPC”]); and (2) a claim for
contribution and indemnification against the Public
Administrator based on allegations that A. Wang “acted jointly
with the [Public Administrator],” and conducted any sale of
artwork belonging to the Estate “pursuant to . . . rules,
requirements, and procedures made by the Public Administrator
for the protection of the Estate.” (Id. ¶¶ 23. 25.)
On June 21, 2018, Third-Party Defendants Y.K. King and
Kenneth King served counsel for the Wangs with -- but did not
file with the Court -- a formal motion for sanctions pursuant to
Rule 11.

The motion notified A. Wang and S.K. Wang that, unless

the TPC was withdrawn, the Kings would move for sanctions for
the following reasons:

(1) “the TPC names YK and her family as

defendants for the improper purpose of harassing them and
5

increasing the cost of litigation” and “contains no factual
allegations whatsoever against any members of the King Family
nor describes how they could be liable for the actionable
conduct”; (2) the TPC “contains claims against the King Family
that have no basis in law” because “[t]he TPC does not even
begin to suggest how each of YK, her husband, her son, or her
daughter, acted as ‘joint tort feasors’ with any of the
Defendants-Third-Party Plaintiffs”; (3) “the TPC seeks to
commence new claims against third parties that would be utterly
barred by the statute of limitations”; (4) there is no
“reasonable basis in fact or law” to bring a claim against the
Public Administrator because “[t]here are no legal claims
against the Defendants for negligence to which the [Public
Administrator] can contribute; all claims against the Defendants
sound in intentional tort”; and (5) the TPC “is untimely and was
filed without the required leave of the Court.”

(Israel Decl.

Ex. 2 at 2-3 (Aug. 3, 2018), ECF No. 91-2.)
On July 25, 2018, the Wangs filed an amended Third-Party
Complaint (the “Amended TPC”), adding numerous factual
allegations, including (1) that Y.K., Kenneth, and Raymond King
sold paintings belonging to the Estate to buyers in China in
violation of U.S. law (First Amended Third-Party Compl. ¶ 18
(July 25, 2018), ECF No. 87), (2) that proceeds from such
unauthorized sales were deposited in accounts, some of which
6

were held in the name Raymond King and some of which were held
in the name Lynn King (Id. ¶ 19(o)); (3) that the Kings
“continue to retain possession of paintings belonging to the
Estate and to third-party plaintiffs and the proceeds from the
[unauthorized] sales of

. . . paintings” (Id. ¶ 21); and (4)

that the Kings “have concealed other assets of the Estate and of
third-party plaintiffs” (Id. ¶ 25).

The Amended TPC retained

the claims against the Kings for contribution and
indemnification but added an additional claim against them for
conversion.

It retained the claim for contribution and/or

indemnification against the Public Administrator.
On August 3, 2018, the Kings filed the instant motion to
dismiss or strike the Amended TPC and for sanctions pursuant to
Rule 11.

On August 12, 2018, the Wangs voluntarily dismissed

their claims against the Kings but proceeded with their claim
against the Public Administrator.
DISCUSSION
I.

LEGAL STANDARD

Federal Rule of Civil Procedure 11(b) prohibits an attorney
from presenting to the court “a pleading, written motion, or
other paper” if (1) it is 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 not “warranted by
7

existing law”; or (3) the factual contentions do not “have
evidentiary support.”
The Second Circuit has instructed that a court “is to
impose sanctions against a party and/or his attorney under
Rule 11 when it appears that a pleading or other signed paper
has been interposed for an improper purpose or that after
reasonable inquiry, a competent attorney could not form a
reasonable belief that the signed paper was well grounded in
fact.” Healey v. Chelsea Res., Ltd., 947 F.2d 611, 622 (2d Cir.
1991).

In other words, “[t]o determine whether a violation of

Rule 11 has occurred, the court must decide whether the
attorney's conduct was objectively reasonable at the time he or
she signed the motion, pleading, or other paper.” New York Stock
Exch., Inc. v. Ghary, No. 00 CIV. 5764 RLC, 2003 WL 68038, at *2
(S.D.N.Y. Jan. 8, 2003).
Rule 11 sanctions are rare because “Rule 11 targets
situations ‘where it is patently clear that a claim has
absolutely no chance of success.’” Healey, 947 F.2d at 622
(quoting Stern v. Leucadia Nat’l Corp., 844 F.2d 997, 1005 (2d
Cir. 1988)).

Where sanctions are warranted, however, a

voluntary dismissal will do nothing to protect the party to be
sanctioned. See Dennis v. Pan Am. World Airways, Inc., 746 F.
Supp. 288, 291 (E.D.N.Y. 1990) (holding that a “voluntary
dismissal cannot stave off warranted sanction”).
8

The Supreme

Court has determined that “district courts may enforce Rule 11
even after the plaintiff has filed a notice of dismissal under
Rule 41(a)(1).” Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
395 (1990).
Relevant to this case, a court may not impose sanctions for
a violation of Rule 11(b) if the moving party has failed to
comply with the procedural requirements and safe harbor
provision contained in Rule 11(c)(2), which states that a motion
for sanctions “must be made separate from any other motion” and
“must not be filed or be presented to the court if the
challenged paper, claim, defense, contention, or denial is
withdrawn or appropriately corrected within 21 days after
service or within another time the court sets.” Fed. R. Civ. P.
11(c)(2).

Rule 11’s procedural requirements “have been strictly

interpreted by the Second Circuit.” Levi & Korsinsky, LLP v.
Bower, No. 14 CIV. 10069 (AT), 2015 WL 10437758, at *3 (S.D.N.Y.
Feb. 16, 2015); see also Williamson v. Recovery Ltd. P'ship, 542
F.3d 43, 51 (2d Cir. 2008) (affirming district court’s decision
to deny sanctions where the defendants “failed to make a
separate motion for sanctions under Rule 11, and therefore
failed to comply with the procedural requirements of the rule”);
Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52,
58 (2d Cir. 2000) (“If, on remand, the district court determines
to revisit the issue of Rule 11 sanctions, it must adhere to the
9

procedural rules which safeguard due process rights and
delineate the legal basis for any sanctions awarded.”).
II.

APPLICATION

The Kings argue that Rule 11 sanctions are warranted
against the Wangs and their counsel because “the legal theories
in the [Amended] TPC are objectively unreasonable and intended
to harass.” (Mem. of Law in Supp. of Mot. to Strike or Dismiss
the Third-Party Compl. and for Rule 11 Sanctions at 15 (Aug. 3,
2018), ECF No. 92.)

The Kings assert that the Amended TPC

contains “sparse factual allegations,” names “family members
with no involvement in the alleged facts,” and attempts to apply
claims that are not warranted by existing law. (Id.)
The Wangs make four arguments in response:

(1) the Amended

TPC is different from the original TPC and, therefore, reset the
clock for compliance with Rule 11’s safe harbor requirement; (2)
the Kings failed to comply with Rule 2(A) of this Court’s
Individual Rules of Practice, which requires a request for a
pre-motion conference before the filing of a motion; (3) the
Amended TPC was not filed for an improper purpose and was
supported by facts; and (4) the motion for sanctions was not
made separately from any other motion.
This Court declines to discuss the merits of the Kings’
arguments for sanctions because it finds that the Kings have
failed to comply with Rule 11’s strict procedural requirements.
10

Specifically, they failed to make their motion “separately from
any other motion.” Fed. R. Civ. P. 11(c).

Rather, they tacked

their motion for sanctions onto their motion to strike the
Amended TPC. See Bower, 2015 WL 10437758, at *3 (denying a
motion for sanctions where the defendants’ “purported Rule 11
motion consist[ed] of a single, conclusory sentenced” added to
the end of a brief); see also Williamson, 542 F.3d at 51
(affirming district court’s decision to deny request for
sanctions pursuant to Rule 11 because the defendants failed to
“make a separate motion for sanctions”).
The Kings also failed to comply with Rule 11(c)’s safe
harbor provision.

The parties do not dispute that the Second

Circuit held in Lawrence v. Richman Grp. of CT LLC, 620 F.3d
153, 158 (2d Cir. 2010), that “the filing of an amended pleading
resets the clock for compliance with the safe harbor
requirements of Rule 11(c)(2) before a party aggrieved by the
new filing can present a sanctions motion based on that pleading
to the district court.”

The parties dispute, however, whether

Lawrence applies when a party has unilaterally amended its
pleading, as opposed to when a party was granted leave to
replead and then filed a new complaint, as was the case in
Lawrence.
This Court finds that the rule in Lawrence applies to “all
pleadings” and, therefore, applies even when a party has
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exercised its right to amend its pleading as a matter of course.1
Lawrence, 620 F.3d at 157.

Other courts in this district have

applied Lawrence to pleadings amended as a matter of course
under Federal Rule of Civil Procedure 15(a). See e.g., Rates
Tech. Inc. v. Broadvox Holding Co., LLC, No. 13 CIV. 0152 SAS,
2014 WL 46538, at *5 (S.D.N.Y. Jan. 6, 2014) (holding that
defendants were required to serve a new sanctions motion after
plaintiffs, who had amended their complaint as a matter of
course, filed a new complaint).

This Court, like the district

court in Lawrence, may be faced with “relentless motion
practice”; however, as cautioned by the Second Circuit, that
does not give this Court -- or the Kings -- the ability to
“negate the safe harbor requirements of Rule 11(c)(2).”
Lawrence, 620 F.3d 160.
Because the Kings have failed to meet the procedural
requirements of Rule 11(c)(2) Court is barred from granting “any
award of sanctions” and this motion is denied. Targum v. Citrin
Cooperman & Co., LLP, No. 12 CIV. 6909 SAS, 2013 WL 6087400, at
*9 (S.D.N.Y. Nov. 19, 2013).

The Kings contend that the case management order barred
the Wangs from filing their Amended TPC as all “amended
pleadings” had to be filed by July 2, 2018. This argument is
unavailing because the case management order did not address any
third-party pleadings and was agreed to by the parties before
the Wangs had filed their original TPC.
1

12

CONCLUSION

For the foregoing reasons, the motion brought by Plaintiff
and Third-Party Defendant Y.K. King and Third-Party Defendant
Kenneth King to strike or dismiss the Third-Party Complaint is
moot.

The part of their motion requesting this Court impose

sanctions is DENIED.

The Clerk of the Court is directed to

close this motion (ECF No. 90).

SO ORDERED.
Dated:

New York, New York
October ~' 2018

~r.~. ,.J
~AN
JOHN F.

United States District Judge

13

I