Kaltman v. Petroleo Brasileiro S.A.- Petrobras
Filing
896
OPINION & ORDER re: 856 MOTION for Sanctions Against Joshua R. Furman; 859 MOTION for Bond Notice of Lead Counsel's Motion For An Order Requiring An Appeal Bond; 862 MOTION for Sanctions Notice of Lead Counse l's Motion for Sanctions Against Joseph Gielata and Richard Gielata: In conclusion, the Court hereby orders Joshua R. Furman to pay Class Plaintiffs, by no later than October 1, 2018, the sum of $10,000. This is without prejudice, howev er, to the imposition of further sanctions against Furman. In all other respects, the Court denies Class Plaintiffs' motion for sanctions against Furman and against the Gielatas, and likewise denies both Furman's and the Gielatas' cros s-motions for sanctions against Class Counsel. Further, Bueno is hereby ordered to post an appeal bond in the amount of $5,000, and the Gielatas are hereby ordered to post an appeal bond in the amount of $50,000, both by October 1, 2018. The Clerk is instructed to close docket numbers 856, 859, and 862. (Signed by Judge Jed S. Rakoff on 9/19/2018) (jwh)
'·
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 1 of 31
USDCSDNY
DOCUMENT
ELECTRONICALLY Fil.ED
DOC #: _ _-nir+-~1-9~
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------x
DATE FILED:
14-cv-96'62 (JSR)
In re: PETROBRAS SECURITIES
LITIGATION
OPINION & ORDER
-------------------------------------x
JED S. RAKOFF, U.S.D.J.
Those who file objections to class action settlements may
themselves be pursuing widely varying objectives, ranging from
the useful to the self-serving. On the positive side, class
action "objectors" -
i.e., members of the class who file
objections to proposed class action settlements prior to the
Court's determination of whether or not to finally approve the
settlement to which it has previously given preliminary approval
- may serve an important role in protecting class interests.
They can, for example, bring to light evidence that a settlement
was collusive or that class counsel's fee award was inflated.
See, e.g., White v. Auerbach, 500 F.2d 822, 828 (2d Cir. 1974)
("[I]t is well settled that objectors have a valuable and
important role to play in preventing collusive or otherwise
unfavorable settlements"). Moreover, if interested class
members, who, if not named plaintiffs, typically play no role in
settlement negotiations, were not given the opportunity to
express their views of the settlement, the entire class action
structure might not pass constitutional muster. See Amchem
1
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 2 of 31
Prods. v. Windsor, 521 U.S. 591
(1997)
(emphasizing the
importance of protecting absent class members).
In recent years, however, it has become obvious that some
objectors seek to pervert the process by filing frivolous
objections and appeals, not for the purpose of improving the
settlement for the class, but of extorting personal payments in
exchange for voluntarily dismissing their appeals. These
extortionate efforts, which the Seventh Circuit recently termed
"objector blackmail," have increasingly interfered with the
prompt and fair resolution of class litigation at a direct cost
to class members, who may thereby be prevented from collecting
the settlement funds owed to them for months and even years
unless they succumb to the blackmail. See Pearson v. Target
Corp., 893 F.3d 980, 982
(7th Cir. 2018). See also In re Ivan F.
Boesky Sec., 948 F.2d 1358, 1368 (2d Cir. 1991) (discussing how
objectors "constituting ... an infinitesimal fraction of the
classes as a whole, and pursuing weak claims, have injured all
classes by this appeal"); In re Initial Public Offering Sec.
Litig., 728 F. Supp. 2d 289, 295 (S.D.N.Y. 2010)
("concur[ring]
with numerous courts that have recognized that professional
objectors undermine the administration of justice by disrupting
2
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 3 of 31
settlement in the hopes of extorting a greater share of the
settlement for themselves and their clients") . 1
An amendment to Rule 23, Fed. R. Civ. P.,
requiring
judicial approval of any monetary settlements to objectors,
is
scheduled to go into effect at the end of this year absent
Congressional veto. The amendment may help to curb these abusive
side deals in the future. See Proposed Amendments to the Federal
Rules of Civil Procedure, Rules 5, 23, 62, and 65.1, Slip Order
at *9-15 (U.S. Apr. 26, 2018,
https://www.supremecourt.gov/orders/courtorders/frcv18 5924.pdf.
But in the meantime individual courts bear responsibility for
striking a balance between facilitating legitimate objections
and protecting class members from objector extortion.
Before the Court is the motion of Class Plaintiffs for
sanctions against Joshua R. Furman, Esq.
("Furman"), attorney
for objector Spencer Bueno ("Bueno"), and against objector
Richard Gielata and his "de facto counsel," Joseph Gielata, Esq.
(collectively, "the Gielatas") . 2 Class Plaintiffs argue that
Unless otherwise indicated, case quotations omit all internal
quotation marks, alterations, footnotes, and citations.
1
2The Gielata objections were filed on behalf of Richard and
Emelina Gielata, but Class Plaintiffs do not seek sanctions or
other relief with respect to Emelina. They do, however, seek
sanctions and other relief with respect not only as to Richard
Gielata, but also as to Joseph Gielata, who functioned as their
quasi-counsel during the proceedings in this Court and who now
has filed an appeal as their purported assignee.
3
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 4 of 31
sanctions are warranted pursuant to Federal Rule of Civil
Procedure 11 ("Rule 11"), 28 U.S.C. § 1927 ("Section 1927"),
and/or the Court's inherent authority. See Memorandum of Law in
Support of Lead Plaintiff's Motion for Sanctions Against Joshua
R. Furman ("Pl. Mem. F."), Dkt. 857; Memorandum of Law in
Support of Motion for Sanctions Against Joseph Gielata and
Richard Gielata ("Pl. Mem. G."), Dkt. 862. Class Plaintiffs also
argue that Bueno and the Gielatas should be ordered to post
a~
appeal bond. Lead Plaintiff's Memorandum of Law in Support of
Motion for an Order Requiring an Appeal Bond ("Pl. Mem. Bond"),
Dkt. 860. Furman, Bueno, and the Gielatas oppose, and have filed
cross-motions for sanctions against Class Plaintiffs. See
Opposition to Lead Counsel's motion for Sanctions Against Joshua
R. Furman, Request for Sanctions Against Jeremy A. Lieberman
Pursuant to Federal Rule of Civil Procedure 11 (c) (2)
("Furman
Opp."), Dkt. 880; Bueno Opposition to Lead Plaintiff's Motion
for an Appeal Bond ("Bueno Bond Opp."), Dkt. 881; Richard,
Emelina and Joseph Gielata's Memorandum of Law in Opposition to
Lea Plaintiff's Motion for Sanctions and for an Appeal Bond and
Counter-Request for Sanctions Against Jeremy Lieberman and
Pomerantz LLP ("Gielata Opp."), Dkt. 882.
For the reasons stated below, the Court imposes sanctions
against Furman in the amount of $10,000, to be paid by October
1, 2018(and without prejudice to Class Plaintiffs seeking
4
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 5 of 31
further sanctions subsequently) and orders Bueno to post an
appeals bond of $5,000; denies the motion for sanctions against
the Gielatas, but orders the Gielatas to post an appeal bond of
$50,000; and denies in their entirety the objectors' motions to
sanction Class Plaintiffs.
I.
Background
The Court here assumes full familiarity with the history of
this large and lengthy litigation and with the underlying facts,
which are more fully laid out in the Opinion and Order dated
June 22, 2018
("Op."), Dkt. 834. As here relevant, the Court, on
June 22, 2018, approved a $3 billion settlement in the instant
class action, one of the largest class action settlements in
recent years. In doing so, the Court rejected, inter alia,
objections filed by Bueno, represented by Furman, and by Richard
and Emelina Gielata (and drafted by Joseph Gielata), but
declined to reach Class Plaintiffs' allegations that Bueno and
Richard and Emelina Gielata were acting with "improper motives
including ... seeking to extort personal payments through the
device of frivolous appeals." Id. at 4 n.5.
Instead, the Court
expressly retained jurisdiction to address, even after entry of
final judgment, any past or future objector efforts at
extortion. See Order dated May 22, 2018, at 2, Dkt. 818
("[O]bjectors were reminded that by filing their objections to
the class settlement, they and their counsel were subject to the
5
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 6 of 31
continuing jurisdiction of the Court and that, if appropriate,
the Court would retain jurisdiction to inquire into their
compliance with Rule 11 and analogous provisions of federal
law"); see also June 4, 2018 Hr'g Tr. at 55:23-56:6 ("I have
expressly retained jurisdiction in this case over the objectors
even after I issue my final rulings on the matters before me
today") . Bueno and Richard, Emelina, and Joseph Gielata
subsequently filed notices of appeal of the Court's final
judgment. See Notice of Appeal, Dkt. 849; Notice of Appeal, Dkt.
850; Notice of Partial Withdrawal of Objections of Spencer R.
Bueno to Class Action Settlement, Dkt. 853.3 This motion practice
followed.
I.
Motions for Sanctions
Class Plaintiffs argue that Furman, representing Bueno, and
Richard and Joseph Gielata filed their objections and subsequent
appeals as part of an "extortionist agenda" to extract a
monetary settlement in exchange for dismissing their appeals.
Pl. Mem. G. at 1; Pl. Mem. F. at 1. Accordingly, they seek the
imposition of sanctions on Furman and the Gielatas pursuant to
Rule 11, Section 1927, and/or the Court's inherent authority.
A third notice of appeal was filed by objectors Mathis and
Catherine Bishop, see Dkt. 842, but, unlike Bueno and the
Gielatas, the Bishops stipulated that their appeal pertained
solely to the issue of attorneys' fees and expenses and,
accordingly, did not preclude the settlement from becoming
final. See Stipulation & Order Dated July 26, 2018, Dkt. 847.
3
6
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 7 of 31
A. Legal Standard
"A federal district court possesses broad inherent power to
protect the administration of justice by levying sanctions in
response to abusive litigation practices." Penthouse Int'l, Ltd.
v. Playboy Enters., Inc., 663 F.2d 371, 386 (2d Cir. 1981). The
court's inherent power has been long-recognized to include the
power "to discipline attorneys who appear before it." Chambers
v. NASCO, Inc., 501 U.S. 32, 43 (1991)
(citing Ex Parte Burr, 22
U.S. 529 (1824)). While "the court should ordinarily rely on the
Rules rather than the inherent power" to sanction bad-faith
conduct, if "neither the statute nor the Rules are up to the
task, the court may safely rely on its inherent power." Id. at
50. A court may issue sanctions pursuant to its inherent power
"against an attorney, a party, or both." Olivieri v. Thompson,
803 F.2d 1265, 1273 (2d Cir. 1986).
Sanctions are justified pursuant to the court's inherent
power where there is a "specific finding" of bad faith and
"clear evidence that the conduct at issue is (1) entirely
without color and (2) motivated by improper purposes." Wolters
Kluwer Fin. Servs., Inc. v. Scivantage, 564 F.3d 110, 114 (2d
Cir. 2009). In determining whether bad-faith warrants sanctions,
courts "focus on the purpose rather than the effect of the
sanctioned attorney's activities." Enmon v. Prospect Capital
Corp., 675 F.3d 138, 145 (2d Cir. 2012)
7
(finding that "sanctions
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 8 of 31
may be warranted even where bad-faith conduct does not disrupt
the litigation before the sanctioning court").
Section 1927 authorizes the imposition of sanctions against
"any attorney ... who so multiplies the proceedings in any case
unreasonably and vexatiously" in the form of "excess costs,
expenses and attorney's fees reasonably incurred because of such
conduct." 28 U.S.C. § 1927. The purpose of the statute is to
"deter unnecessary delays in litigation." Olivieri, 803 F.2d at
1273.
Much like sanctions imposed pursuant to the court's
inherent power, section 1927 sanctions require "a clear showing
of bad faith on the part of an attorney," which "may be inferred
only if actions are so completely without merit as to require
the conclusion that they must have been undertaken for some
improper purpose such as delay." Salovaara v. Eckert, 222 F.3d
19, 35
(2d Cir. 2000). See also Olivieri, 803 F.2d at 1273
("[T]he only meaningful difference between an award made under§
1927 and one made pursuant to the court's inherent power
is ... that awards under § 1927 are made only against attorneys or
other persons authorized to practice before the courts while an
award made under the court's inherent power may be made against
an attorney, a party, or both.").
The Second Circuit has described the determination as to
whether to impose sanctions as "one of the most difficult and
unenviable tasks for a court." Schla1fer Nance & Co., Inc. v.
8
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 9 of 31
Estate of Warhol,
194 F.3d 323, 341
(2d Cir. 1999). "On the one
hand, a court should discipline those who harass their opponents
and waste judicial resources by abusing the legal process. On
the other hand, in our adversarial system, we expect a litigant
and his or her attorney to pursue a claim zealously within the
boundaries of the law and ethical rules." Id. As noted above,
achieving this balance is particularly difficult in class
actions, where the Court must safeguard the ability of objectors
to protect class members from abusive settlements while in turn
protecting class members from being abused by the objectors
themselves.
B. Joshua R. Furman
Plaintiff argues that Furman should be sanctioned because
the objections he made before this Court and the appeal that he
has now filed on behalf of Bueno from this Court's denial of
these objections lack any colorable merit and "are made for the
sole purpose of delaying the administration of the Settlement,"
i.e., are made in bad faith. Pl. Mem. F. at 11. This Court
largely agrees.
i.
Colorable Basis
"Conduct is entirely without color when it lacks any legal
or factual basis." Wolters Kluwer,
564 F.3d at 114. In making
this assessment, the Court must consider "whether a reasonable
attorney ... could have concluded that the facts supporting the
9
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 10 of 31
claim might be established, not whether such facts actually had
been established." Schlaifer Nance, 194 F.3d at 337.
Representing Bueno, Furman filed as his objections to the
proposed final settlement what this Court then described as "a
kitchen-sink brief that purports to identify inequities relating
to at least a dozen aspects of the proposed settlement," Op. at
24, none of which had the slightest merit. Indeed, some of
Furman's arguments lacked even factual support, while the others
lacked any legal basis.
For instance, the Court found no factual support for
Furman's argument that the Plan of Allocation was not provided
on the notice website, id. at 23 n.15. Or, again while Furman
objected that plaintiffs had not provided a break-down of
expenses necessary to calculate a reasonable fee award, the
Court found that "each Representative has provided sworn
statements detailing the work performed, the people who
performed it, and the time expended." Id. at 27. As for Furman's
legal arguments, they were often entirely lacking, or (as in the
case of Furman's strange argument that the Plan was an "improper
claimant fund-sharing scheme") were premised on purported
authority that was, as the Court found,
"entirely inapposite."
Id. at 25.
The only objection raised by Furman that might even be
considered conceivably colorable (though even that would be a
10
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 11 of 31
stretch) was the argument that the settlement "fail[ed] to
address the issue of cy pres distributions" adequately because
it did not identify a specific cy pres recipient, but instead
provided for the later identification of a Brazilian entity
"selected by the Petrobras Defendants and approved by Class
Counsel, whose mission is to fight corruption and improve
corporate governance in Brazil." Objections of Spencer R. Bueno
to Class Action Settlement & Opposition to Motion for Attorneys'
Fees and Incentive Payments to Class Representatives at 4, Dkt.
803. Furman argued that the specific identity of the cy pres
recipient "must be determined by the Court ... before the
settlement can be approved," and that the settlement's cy pres
provision would deprive class members of their "right to be
heard on who the cy pres recipient will be." Id.
As presented in Furman's objection, these arguments lacked
any legal support: Furman cited no case law in support of these
assertions. Nonetheless, in approving the settlement, the Court
deferred ruling on objections to cy pres as it was unclear at
that point if there would be any funds left after distribution
to the class and so the matter might be moot. See June 4, 2018
Tr. Instead, the Court specifically provided that it would
"permit further briefing on this [cy pres] issue, as
appropriate,
if and when the question becomes ripe for
11
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 12 of 31
consideration, and the Court retains jurisdiction for that
purpose." Op. at 23.
Entirely independent of the cy pres issue, the frivolous
quality of Furman's other objections would well warrant
sanctions under Section 1927. But since it is only the cy pres
issue that Furman now raises on appeal, see Notice of Partial
Withdrawal of Objections of Spencer R. Bueno to Class Action
Settlement, Dkt. 853, and since the essence of Class Plaintiffs'
motion is that Furman's notice of appeal was filed for purely
extortionate purposes, it is worth noting how totally frivolous
that appeal is. To begin with, there is no case law in the
Second Circuit requiring the court to identify a specific cy
pres recipient prior to approving a settlement. See In re Am.
Int'l Group,
2013)
Inc. Sec. Litig., 293 F.R.D. 459, 463 (S.D.N.Y.
(rejecting objector's contention that settlement could not
be approved as it failed to specify a cy pres beneficiary as
"there was no legal authority to support the argument; no Court
in the Circuit has ever made identifying the organization to
receive the residual funds a condition precedent to a Settlement
approval")
(emphasis added) ; see also In re Ci ti group Inc. Sec.
Litig., 199 F. Supp. 3d 845, 851
(S.D.N.Y. 2016)
(denying
reconsideration of a court order approving cy pres designation
after its approval of the settlement agreement, noting that "by
the time cy pres designations are ripe, any remaining settlement
12
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 13 of 31
funds cannot be distributed further to the class"). Furman does
not argue that Second Circuit law states otherwise. Instead, he
now describes his contention that the court must designate a cy
pres recipient prior to settlement approval as "based on
persuasive Ninth Circuit authority and related cases," Furman
Opp. at 7, and necessary to "avoid a circuit split," Bueno Opp.
at 6.
In actuality, however, as Furman implicitly acknowledges in
his most recent briefing, Furman Opp. at 7-8, Ninth Circuit
precedent, like that of the Second Circuit, does not condition
settlement approval on cy pres recipient identification. Rather,
the Ninth Circuit has explicitly held that cy pres issues
"become[] ripe only if the entire settlement fund is not
distributed to class members." Rodriguez v. West Publ'g Corp.,
563 F.3d 948, 966 (9th Cir. 2009)
(declining to address
objectors' challenge to a class settlement's cy pres provision
as "no cy pres disbursement in imminent")
(emphasis added). The
one Ninth Circuit case that Furman cites in purported support of
his "circuit split" claim, Dennis v. Kellogg Co., 697 F.3d 858
(9th Cir. 2012), is, in fact, entirely consistent with the
framework adopted by Rodriguez (and this Court): the Dennis
court found objections to
~
pres distribution "ripe for
determination" in that case because at that point both the fact
that funds were left for cy pres distribution and the amount of
13
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 14 of 31
those funds had been determined. Id. at 864-65. Furman himself
notes that Dennis distinguishes Rodriguez on these grounds, see
F. Opp. at 8, yet in the same paragraph asserts that Dennis's
holding is that "the identity of the cy pres recipient must be
determined in order to fulfill the trial court's obligation to
absent class members under Rule 23," Furman Opp. at 7. This
blatant mischaracterization is clearly insupportable.
Furthermore, given the Court's ruling that it would address
the cy pres issue if and when (if ever)
it became ripe, i.e.,
when there were any leftover funds to distribute (an unlikely
circumstance in this case), Furman's appeal is itself unripe.
While Furman asserts that "the same circumstances that required
ruling on Dennis are present in this case," Furman Opp. at 8,
the contrary is true; for in this case, unlike in Dennis, it is
unclear if there will be any funds remaining for cy pres
distribution. Op. at 23. Furman's personal speculation that
funds will likely be left for cy pres distribution, Furman Opp.
at 8, is not the legal equivalent of the statement by the claims
administrator and class counsel specifying the amount of funds
remaining for _s:y pres distribution that the Dennis court found
made the cy pres issue ripe.
4
4 Furman also argues that approval of the settlement should be
delayed pending the Supreme Court's decision in Frank v. Gao,
No. 17-961 (U.S. 2017), which is currently scheduled for oral
argument on October 31, 2018. Furman contends that the Supreme
14
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 15 of 31
Furman also objects generally to the structure of the cy
pres provision in the final settlement, arguing that it provides
insufficient Court supervision of the designation of the cy pres
recipient and that the selected designee might be inappropriate.
Furman Opp. at 9-10. Yet, as the Court stated clearly in its
Opinion and was subsequently agreed to by the parties in a
stipulation discussed below, see Stipulation & Order dated
August 31, 2018, at 2, Dkt. 889, the structure of this provision
is irrelevant, because the Court retains full authority to
select, structure, and supervise designation of a cy pres
recipient when and if the issue becomes ripe. Furman offers no
explanation of why any objections he might have to the selection
of the proposed
~
pres recipient could not be sufficiently
heard when, if ever, it is clear what amount of money, if any,
is available for cy pres distribution.
In sum, Furman's objections in the district court and his
projected appeal of one of them lack any colorable basis.
ii.
Bad Faith
Court's ruling in that case "will almost certainly provide
further guidance on what must be found for approval of any class
action settlement including a cy pres distribution." Furman
Opp. at 8 n.3. However, as Furman himself acknowledges, the
question presented in Frank is "whether a cy pres-only
distribution is ever fair, reasonable, and adequate[]." Id.; see
Petition for Writ of Certiorari, Frank v. Gao, No. 17-961 (U.S.
2017). This is clearly irrelevant to the case at hand.
15
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 16 of 31
Bad faith may be inferred where "actions are so completely
without merit as to require the conclusion that they must have
been undertaken for some improper purpose such as delay."
Salovaara v. Eckert, 222 F.3d 19, 35 (2d Cir. 2000). Moreover,
"[m]isrepresentations, coupled with frivolous litigation,
establish clear evidence of bad faith." Prospect Capital Corp.
v. Enmon, No. 08 civ. 3721, 2010 U.S. Dist. LEXIS 23477, at *15
( S. D. N. Y. Mar. 9, 2010) .
As discussed above, Furman's objections - not least the cy
pres argument that he is using, through his appeal, to
materially delay distribution of the settlement funds to the
victim class - are frivolous, either on their face or upon
inspection. Moreover, Furman, in his submissions to the Court,
has made repeated misrepresentations of both the facts and the
law. The only likely motive for this misconduct is Furman's
attempt to extort a payment from the Class Plaintiffs in order
that they may avoid costly delay, in other words, extortion. Any
doubt that this is his bad faith motivation is erased by
Furman's established history, detailed in Class Plaintiff's
submissions, of filing appeals on behalf of objectors and then
voluntarily dismissing them in exchange for payments. See Pl.
Mem. F. at
4-5.~
See, e.g., Initial Pub. Offering, 728 F. Supp.
Furman disputes that his motivation in these other cases was
extortionate, citing still other cases where, he claims, his
5
16
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 17 of 31
2d at 294
(considering objector's history of "serial" objections
and efforts to extort fees in exchange for withdrawing appeals
as evidence of bad faith).
Still further evidence of Furman's bad faith may be
inferred from his recent conduct. After this Court rejected his
objections as frivolous and approved the settlement, Furman
initially appealed the entire Final Approval Order. See Notice
of Appeal, Dkt. 850. Upon receipt of Class Plaintiff's proposed
motion for sanctions, however, Furman withdrew all of his
objections except for his objections related to the
~
pres
recipient. See Notice of Partial Withdrawal of Objections of
Spencer R. Bueno to Class Action Settlement, Dkt. 853. To
address Furman's concerns with regard
to~
pres, Class
Plaintiffs and Defendants prepared a stipulation, which has now
been entered by the Court, clarifying that, "[p]rior to any
distribution being paid to the cy pres recipient," Class
Plaintiff and Defendants would file a motion setting forth their
proposed designation, that any settlement class member could
oppose the designation at that point, and that no distribution
would be made to a cy pres recipient until the Court ruled upon
objections had a positive impact on the settlement, and arguing
that his record in objecting to class actions is therefore
"balanced in terms of outcomes, results, and settlement
postures." Bueno Opp. at 1-2. But the fact that Furman may have
sometimes hit on a legitimate objection in no way excuses the
many instances in which his objections were palpably meritless.
17
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 18 of 31
the motion to designate a recipient
~and
until all appeals
thereto have been exhausted." See Stipulation & Order dated
August 31, 2018, at 2, Dkt. 889. Although this stipulation of
the parties fully protected Furman's ability to object to any cy
pres designation once the issue becomes ripe, Furman refused to
go along with it or withdraw his remaining appeal. See Email
from Joshua R. Furman to Class Plaintiffs dated Aug. 28, 2018,
Declaration of Jeremy A. Lieberman in Further Support of Lead
Plaintiff's Motions for Sanctions Against Joshua R. Furman,
Joseph Gielata, and Richard Gielata, Dkt. 887-3. While, of
course, Furman had no legal obligation to sign this stipulation,
his refusal to do so when the stipulation directly addressed
each of his concerns regarding the cy pres recipient
(except
for his clearly meritless contention that the cy pres recipient
must be identified prior to settlement approval) and expressly
preserved his right to later object regarding cy pres
identification, strongly suggests that his appeal is not
motivated by genuine concerns about the class's interests
in~
pres.
The Court is left with no doubt whatsoever that Furman has
been proceeding in bad faith.
iii. Appropriateness of Sanctions
Furman contends that he cannot be subject to sanctions
either for having filed frivolous objections in this Court or
18
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 19 of 31
for filing a frivolous appeal to the Second Circuit. As to the
first contention, while it may be that Rule 11 sanctions do not
apply in these circumstances, full authority remains in this
Court to award sanctions for his bad faith filings under Section
1927 and the Court's inherent authority. See Chambers, 501 U.S.
at 50; Enmon, 675 F.3d at 145; Olivieri, 803 F.2d at 1273. And,
while the second contention has some superficial appeal, it
obscures the fact that Furman's objections and appeal are
inextricably linked together as two components of a single
extortionate scheme.
To treat the filing of frivolous objections in the district
court and the equally-frivolous appeal of the denial of one of
those objections as two unconnected actions, as Furman would
have it, would be to blind oneself to the reality of how the
scheme of Furman and other extortionate objectors actually
works. Such an objector has no expectation that his objections
will prevail in either forum; but the combination creates the
costly delay that leads class plaintiffs to buy him off.
In recognition of such situations, the Second Circuit,
while expressing the usual "preference that district courts not
sanction parties for filing frivolous appeals," has explicitly
"decline[d]" to "establish[] a bright-line rule" when doing so
would create a gap in oversight in situations where appeals are
voluntarily withdrawn before the appellate court has had the
19
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 20 of 31
opportunity to consider sanctionable conduct. Enmon v. Prospect
Capital Corp., 675 F.3d 138, 146-47 (2d Cir. 2012)
("Prohibiting
district courts from imposing sanctions in these unique
circumstances might encourage the malicious law firm to
manipulate the appeals process like a yo-yo."). This analysis
perfectly describes the situation that extortionate objectors
present to courts, seeking to technically avoid both district
court and appellate court sanctions while costing the class
through delay of settlement fund distribution. While the
specific sanctions by the district court that the Second Circuit
affirmed in Enmon concerned an appeal that had already been
voluntarily dismissed, the same reasoning applies here, where
the extortionate appeal is equally "taken purely for dilatory
and resource-draining reasons relating to the district court
litigation." Id. at 147.
Given the ample indications of bad faith and lack of
colorability of Furman's actions throughout this litigation, the
Court finds sanctions appropriate, pursuant to both to Section
1927 and to its inherent power.
iv.
Amount of the Sanctions
In terms of the amount of sanctions to be awarded, Class
Plaintiffs first suggest an award of $23,000, representing the
estimated time spent by Class Counsel in responding to Furman's
20
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 21 of 31
objections. But they acknowledge that this figure is an estimate
based on their total time spent responding to all objections of
all objectors. See Declaration of Jeremy A. Lieberman, Esq., in
Support of Lead Plaintiff's Motion for Sanctions Against Joshua
R. Furman, Dkt. 858. Given the palpable lack of merit of
Furman's filings, the Court infers that not that much of Class
Plaintiffs' time was needed to refute them. The Court therefore
finds sanctions of $10,000 to be more appropriate. This amount
must be paid by Furman to Class Plaintiffs by no later than
October 1, 2018.
However, Class Plaintiffs also seek additional sanctions in
the form of $20,000 per month attributable to the costs for
delaying distribution of the settlement to settlement class
members as a result of Furman's appeal, and reasonable
attorneys' fees and expenses for work performed by Class Counsel
responding to Furman's appeal. Pl. Mem. at 1. While additional
sanctions of this nature may well be warranted eventually, the
Court believes the better approach is to limit the sanctions to
$10,000 for now, without prejudice to Class Plaintiffs seeking
further sanctions depending on what happens on appeal.
C. Joseph and Richard Gielata
Class Plaintiffs also seek sanctions against objector
Richard Gielata and against Joseph Gielata (whom they term "his
de facto counsel")
for filing frivolous objections and a
21
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 22 of 31
frivolous appeal of the settlement. Pl. Mero. G. at 1. Plaintiff
also argues that Joseph Gielata should be sanctioned for the
unauthorized practice of law in connection with his
participation in this case. Id. While the Court is deeply
troubled by some of the Gielatas' conduct, it concludes in the
end that the high burden for awarding sanctions has not been met
in their case.
i.
Colorable Basis
Richard and Emelina Gielata filed an objection to the
settlement arguing,
inter alia, that the class was overbroad and
failed to satisfy the Rule 23 requirement that diverse groups
and individuals in the class be adequately represented. See
Shareholder Objections to Proposed Settlement, Plan of
Allocation, Proof of Claim, Class Notice and Request for
Attorney's Fees ("G. Obj."), Dkt. 813. Specifically, they argued
that an interclass conflict existed between domestic claimants
and those non-domestic claimants whose purchases of Petrobras
securities were connected to the U.S. solely by the fact that
their transactions were cleared through the Depository Trust
Company ("OTC")
in New York ("OTC claimants"). They argued that
OTC claimants should be excluded from the class entirely. Id.
The Court rejected this argument,
finding that defendants had
waived any domesticity challenge for settlement purposes, that
"both the OTC claimants and domestic claimants in this case
22
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 23 of 31
suffered the same injury and are receiving the same relief," and
that the parties had provided an adequate explanation of their
treatment of claims of various strengths. See Op. at 9-20.
Nonetheless, it cannot fairly be said that the Gielata's
objection was frivolous.
The Gielatas also objected to the attorneys'
fees requested
on several grounds. While the Court chose to reduce the
attorneys'
fees on grounds different from those suggested by the
Gielatas, the Court did specifically take note of the Gielatas'
objections as supportive of the reduction. See Op. at 34.
The Gielatas are appealing the issue of adequate
representation,
reiterating their argument that the non-domestic
claimants should not have been included in the class. Gielata
Opp. at 4. While the Court, as detailed in its approval of the
settlement, found their argument to be relatively lacking in
merit and unsupported by case law, the issue, as noted,
is
not
frivolous and not unlike the kind of argument the Court would
expect from a serious objector motivated by concerns for class
welfare. Further, the Court notes that the Gielatas have
committed not to dismiss their appeal "without first seeking the
approval of this Court," Gielata Opp. at 4, a step towards the
type of oversight envisioned by the pending changes to Rule 23.
ii.
Bad Faith
23
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 24 of 31
Despite the foregoing, however, some of the Gielatas'
behavior in this case and other cases casts more doubt on their
bona fides.
In particular, in the case of Gielata v. Eisenhofer,
No. ll-cv-442-PB (D.N.H. Nov. 30, 2012), Joseph Gielata,
representing his father Robert Gielata,
filed a class action on
behalf of all settlement class members for breach of fiduciary
duty against a law firm that had secured a $3.2 billion
settlement for the class, and subsequently voluntarily dismissed
the case in return for a $2 million private payment. See Pl.
Mero. G. at 3. While different in procedure, this was the
substantive equivalent of an extortionate objection, using a
class action as a vehicle to realize large personal prof its
without benefitting the class.
Joseph Gielata's personal history also raises concerns. A
member of the Delaware bar, Joseph Gielata pled guilty to
misdemeanor theft in 2006 for arranging sham transactions to
profit from PayPal's money-back guarantee. See In re Gielata,
No. 373, 2007, 2007 Del. LEXIS 376, at *5 (Del. Aug. 28, 2007).
Although the charges were dismissed after he completed the
conditions of probation and made restitution, Joseph Gielata was
publically reprimanded by the Supreme Court of Delaware for
violating multiple Delaware Lawyers' Rules of Professional
Conduct. Id. at *6, *10-11.
24
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 25 of 31
In the instant action, Joseph Gielata, who is admitted to
the Delaware bar but has not maintained active status, prepared
the objection on behalf of his parents and attempted to
participate as effectively their attorney in calls and
correspondence with the Court, without seeking pro hac vice
admission, entering an appearance, or otherwise seeking
permission. Class Plaintiffs argue that Joseph Gielata should be
sanctioned for unauthorized practice of law on these grounds.
See Pl. Mem. G. at 8. Joseph Gielata argues that he was
permissibly assisting his parents as a retired lawyer and
attempting to represent himself, not his parents, on calls to
the Court regarding discovery sought from him personally. The
Court finds these contentions less than convincing. However,
once the Court became aware of the situation, it directed Joseph
Gielata not to represent his parents on further calls and he
fully complied. Under these circumstances, the Court does not
view sanctions as necessary or appropriate.
The Court retains the right to revisit this conclusion in
the future.
In this regard, the Court notes that the Gielatas'
notice of appeal was filed on behalf of Richard, Emelina, and
Joseph Gielata, and attached a notice of assignment, executed on
July 23, 2018, purportedly assigning to Joseph Gielata "all
associate rights ... as to ONE (1) SHARE in the Class Action
settlement." See Dkt. 849 at 4. The agreement explicitly states
25
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 26 of 31
that it is for the purpose of "confer[ring] Article III standing
on Joseph Gielata to prosecute any objection or appeal in the
Class Action" as "it is not economically feasible for the
Shareholders to hire a lawyer to protect their rights in
connection with the Class Action" and "Joseph Gielata possesses
the resources and legal knowledge to prosecute an appeal." Id.
Put differently, however, it would seem that the assignment was
executed for the explicit purpose of circumventing pro hac vice
admission requirements. Class Plaintiffs question whether an
assignment under these circumstances is valid, See Pl. Mem. G.
at 12, but this presumably would be a question for the Court of
Appeals. Nonetheless, to the extent such "gamesmanship" impacts
any further proceedings in this Court, the Court will continue
to monitor the situation.
iii. Appropriateness of Sanctions
Since, as indicated above, at least one or more of the
objections raised by the Gielatas had an arguably colorable
basis, and since their behavior in pursuing these objections,
while less than ideal, did not exhibit total bad faith and has
not materially prejudiced Class Plaintiffs, the Court declines
to award sanctions against the Gielatas, on any of the various
bases asserted by Class Plaintiffs.
The Gielatas, for their part, argue that Class Plaintiffs
should be sanctioned for filing a frivolous Rule 11 motion "as a
26
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 27 of 31
bullying tactic to intimidate the Gielatas into not filing an
appeal." Gielata Opp. at 22. However, while the Rule 11 prong of
Class Plaintiffs' motion may have not been supportable, they
raised legitimate concerns under Section 1927 and under the
inherent power of the Court, and, accordingly, the Court denies
the Gielatas' motion.
II.
Motion for an Appellate Bond
Class Plaintiffs also move to require Bueno and the
Gielatas to post appeal bonds. Class Plaintiffs argue for the
imposition of a bond in the total amount of $3,030,000,
representing $50,000 for the taxable costs of the appeal, $1.98
million for the incremental expenses of administering the huge
settlement fund during the appeal, and $1 million in estimated
attorneys'
fees for the costs of responding to the appeal. See
Pl. Mem. Bond at 18-24.
Under Rule 7 of the Federal Rules of Appellate Procedure,
"[i]n a civil case, the district court may require an appellant
to file a bond or provide other security in any form and amount
necessary to ensure payment of costs on appeal." To determine
whether a bond is appropriate, courts consider the following
factors: "(1) the appellant's financial ability to post a bond,
(2) the risk that the appellant would not pay appellee's costs
27
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 28 of 31
if the appeal loses,
(3) the merits of the appeal,6 and (4)
whether the appellant has shown any bad faith or vexatious
conduct." Stillman v. Inservice Am.,
Inc., 838 F.Supp.2d 138,
140 (S.D.N.Y. 2011).
First, as to financial ability, the Gielatas argue that
they are not capable of paying Class Plaintiff's requested $3
million bond, but they offer "no dispute" as to their financial
ability to pay "normal costs," which they calculate as $2,000.
Gielata Opp. at 15. In actuality, however, the Gielatas have in
none of their filings disputed their ability to pay the higher
amount of costs calculated by Class Plaintiffs - $50,000 - which
the Court finds to be a reasonable calculation. Nor have the
Gielatas submitted any financial information that would
demonstrate their inability to pay these costs. Accordingly,
they have effectively conceded their ability to pay the full
requested taxable costs. See In re Currency Conversion Fee
Antitrust Litig., No. 01 civ. 1409, 2010 WL 1253741, at *l
(S.D.N.Y. Mar. 5, 2010)
(issue of ability to pay conceded where
no evidence presented demonstrating inability to post bond); In
re AOL Time Warner, Inc., Sec. & ERISA Litig., No. 02 civ. 5575,
2007 WL 2741033, at *2
(S.D.N.Y. Sept. 20, 2007)
(same).
Setting a Rule 7 bond therefore requires the district court to
"prejudge[]" the merits of the appeal. Adsani v. Miller, 139
F.3d 67, 79 (2d Cir. 1998).
6
28
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 29 of 31
Bueno avers that he is able to pay court costs of up to
$5,000, but no more. See Declaration of Spencer R. Bueno in
Opposition to Lead Plaintiff's Motion for an Appeal Bond, Dkt.
881-1. He claims to have no income aside from the support of his
girlfriend. Id. He identifies a few thousand dollars in
investment accounts, although he does not assert that these are
his only bank accounts, and his conceded ability to pay $5,000
suggest that he must have other assets. As Bueno does not
provide adequate evidence substantiating his financial status,
the Court finds his claimed inability to pay "does not weigh[]
in favor of denial of a bond,
[but] the Court will consider this
fact in fixing the amount." Berry v. Deutsche Bank Trust Co.
Ams.,
632 F. Supp. 2d 300, 307
(S.D.N.Y. 2009) . 7
Second, as to risk of non-payment, appellants are located
in different jurisdictions, which would require Class Plaintiffs
to institute multiple collection actions to recover their costs.
Courts have found that such geographic dispersion increases the
Class Plaintiffs argue that the financial resources of Bueno's
lawyer, Furman, should also be considered with regards to the
ability to pay an appellate bond. See Lead Plaintiff's Reply in
Support of its Motion for Appeal Bonds ("Bond Reply") at 2, Dkt.
886. However, Class Plaintiffs stated in their initial motion
that they were requesting Bueno (not Furman) to post an appeal
bond, and the only case that they cite in their reply to support
consideration of Bueno's lawyer's assets in addition is
inapposite, as it addresses Rule 38 sanctions awarded against
both the appellant and the appellant's lawyer, not an appeal
bond. See Bond Reply at 2, citing Ransmeier v. Mariani, 718 F.3d
64 (2d Cir. 2013).
7
29
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 30 of 31
risk of nonpayment. See Initial Pub. Offering, 728 F. Supp. 2d
at 293; Currency Conversion, 2010 WL 1253741, at *2. Bueno and
the Gielatas do offer personal guarantees that they would pay,
see B. Opp. at 5 and G. Opp. at 16. However, Class Plaintiffs
reasonably note that these guarantees are undercut by Bueno's
claims regarding his inability to pay and Joseph Gielata's
history of fraud.
Finally, and most critically, as discussed in detail above,
while the Gielatas' appeal is slightly more colorable than
Bueno's frivolous appeal, both appeals lack merit and both
appellants have exhibited some bad faith conduct, albeit worse
in Bueno's case than in the case of the Gielatas.
Based on its assessment of the relevant factors, the Court
thus finds that an appeal bond is warranted as to both Bueno and
the Gielatas.
As noted, the Court finds Class Plaintiffs' estimation of
costs in the amount of $50,000 reasonable. See, e.g., Currency
Conversion 2010 WL 1253741, at *3 (Finding an appeal bond of
$50,000 appropriate to cover taxable costs); Berry, 632 F. Supp.
2d at 308
(same); Baker v. Urban Outfitters, Inc., No. 01 civ.
5440, 2006 WL 363592, at *l
(S.D.N.Y. Dec. 12, 2006)
(same).
However, it does appear that Bueno's resources are notably less
than the Gielatas'. Accordingly, the Court directs that the
Gielatas post an appeal bond in the amount of $50,000 and that
30
Case 1:14-cv-09662-JSR Document 896 Filed 09/21/18 Page 31 of 31
Bueno post an appeal bond in the amount of $5,000, both bonds to
be posted by October 1, 2018.
III. Conclusion
In conclusion, the Court hereby orders Joshua R.
Furman to
pay Class Plaintiffs, by no later than October 1, 2018, the sum
of $10,000. This is without prejudice, however, to the
imposition of further sanctions against Furman.
In all other
respects, the Court denies Class Plaintiffs' motion for
sanctions against Furman and against the Gielatas, and likewise
denies both Furman's and the Gielatas' cross-motions for
sanctions against Class Counsel. Further, Bueno is hereby
ordered to post an appeal bond in the amount of $5,000, and the
Gielatas are hereby ordered to post an appeal bond in the amount
of $50,000, both by October 1, 2018. The Clerk is instructed to
close docket numbers 856, 859, and 862.
SO ORDERED.
Dated:
New York, NY
September
1J,
2018
31
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