New York Wheel Owner LLC v. Mammoet-Starneth LLC

Filing 350

OPINION AND ORDER. Any party that believes, in light of the foregoing principles, that any materials currently under seal or in redacted form should remain under seal or in redacted form is ORDERED to show cause in writing, on a document-by-docum ent basis, why doing so would be consistent with the presumption in favor of public access no later than two weeks from the date of this Opinion and Order. Proposed redactions should be "narrowly tailored" to achieve the aims that justif y sealing. See, e.g., Brown, 929 F.3d at 47 (internal quotation marks omitted). Finally, each party shall ensure that all sealing and redaction requests are made in accordance with Rule 7 of the Court's current Individual Rules and Practices i n Civil Cases (and the District's ECF Rules and Instructions, the relevant parts of which were amended in 2020). If, by the deadline, no party contends that a particular document should remain under seal or in redacted form, then the parties shall promptly file that document publicly on ECF. The Clerk of Court is directed to terminate ECF No. 326. SO ORDERED. (Signed by Judge Jesse M. Furman on 6/29/21) (yv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
NEW YORK WHEEL OWNER LLC and NEW YORK :
METROPOLITAN REGIONAL CENTER, L.P. II,
:
:
Plaintiffs,
:
:
-v:
:
MAMMOET HOLDING B.V., STARNETH B.V.,
:
MAMMOET USA HOLDING, INC., MAMMOET USA :
NORTH, INC., and STARNETH LLC,
:
:
Defendants.
:
:
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17-CV-4026 (JMF)
OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:
This litigation arose after a plan to build a massive observation wheel on Staten Island,
similar to the London Eye — dubbed the “New York Wheel” — fell apart. More than three
years and countless hours of work by both the parties and the Court later, the litigation itself fell
apart. The reason: Plaintiff New York Wheel Owner LLC (“NYW”) discovered that, contrary to
the allegations set forth in its original Complaint, the parties were not actually completely
diverse when the case was filed, thus defeating the sole basis for federal subject-matter
jurisdiction. The Court promptly dismissed the case, as it was required to do. See ECF No. 305;
see also Herrick Co. v. SCS Commc’ns, Inc., 251 F.3d 315, 321-22 (2d Cir. 2001).
Understandably frustrated by the waste of resources arising from NYW’s error, several
Defendants — Mammoet Holding B.V., Mammoet USA Holding, Inc., and Mammoet USA
North Inc. (together, the “Moving Defendants”) — now move, pursuant to the Court’s inherent
authority, for sanctions against NYW. See ECF No. 326; see also ECF No. 327 (“Defs.’
Mem.”), at 18 & n.20. The Court shares the Moving Defendants’ frustration. Upon review of

the record, however, it cannot find that NYW’s error was made in bad faith, which is a
prerequisite to imposing sanctions pursuant to the Court’s inherent authority. Accordingly, and
for the reasons that follow, the Moving Defendants’ motion for sanctions is denied.
BACKGROUND
From beginning to end, four complaints were filed in this case. NYW was the sole
Plaintiff named in the first three complaints and was represented, when each of these three was
filed, by the law firm of Gibson Dunn and Crutcher, LLP (“Gibson Dunn”). The original
complaint named only one Defendant — Mammoet-Starneth LLC (“Mammoet-Starneth”) — and
cited only one basis for jurisdiction: diversity jurisdiction pursuant to 28 U.S.C. § 1332. ECF
No. 1, ¶ 15. The first and second amended complaints added parties, but diversity remained the
sole basis of jurisdiction. ECF No. 59, ¶ 23; ECF No. 149, ¶ 24. In particular, NYW alleged that
it was “a Delaware limited liability company,” the members of which were “citizens of New
York and New Jersey” only, while Defendants — or their members — were citizens of the
Netherlands, California, Delaware, Florida, and Texas. ECF No. 1, ¶¶ 13-14; ECF No. 59, ¶¶
17-22; ECF No. 149, ¶¶ 17-23.
From December 2017 to August 2019, the case was largely dormant, the result of
Mammoet-Starneth and another Defendant declaring bankruptcy and the remaining parties
signing “a conditional global settlement agreement, subject to certain conditions, that provide[d]
a standstill of all actions until September 6, 2018.” ECF No. 187. For reasons not relevant here,
the settlement later fell apart and, on August 26, 2019, NYW moved to reopen the case. See
ECF No. 210. Just before that happened, though, NYW moved to substitute the law firm Dovel
and Luner LLP (“ (“Dovel and Luner”) — its current counsel — for Gibson Dunn, a motion the
Court granted on August 22, 2019. See ECF Nos. 206, 208. A little over one month later, NYW

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filed a Third Amended Complaint. See ECF No. 214. The Third Amended Complaint added a
second Plaintiff — New York Metropolitan Regional Center, L.P. II, “an investment partnership
and lender” to NYW. Id. ¶ 11. Like the first three complaints, the Third Amended Complaint
alleged the existence of diversity jurisdiction and that NYW’s members were “citizens of New
York and New Jersey.” Id. ¶¶ 10, 19.
On August 21, 2020, the Court issued a fifty-four-page Opinion and Order resolving four
separate motions, including Defendants’ motion to dismiss the Third Amended Complaint. See
N.Y. Wheel Owner LLC v. Mammoet Holding B.V., 481 F. Supp. 3d 216 (S.D.N.Y. 2020) (ECF
No. 282). The Court scheduled a conference to set a discovery schedule, see ECF No. 283, but
just before the conference, on October 15, 2020, NYW revealed in a joint letter that the
allegations in the Third Amended Complaint regarding its citizenship might be inaccurate, see
ECF No. 298, at 4. “Plaintiff New York Wheel Owner LLC,” the letter stated, “is a Delaware
limited liability company with members that are citizens of New York and New Jersey.” Id.
But, it continued, “New York Wheel Owner LLC also has a number of additional minority
investor members whose citizenship had not been adequately determined previously.” Id.
(emphasis added). NYW requested time “to collect and analyze the complicated set of
information — including from third party investor member entities — that [was] needed to
determine whether it [could] continue to assert diversity jurisdiction over its claims.” Id.
In the investigation that followed, NYW confirmed the unfortunate conclusion that it
could not continue to assert diversity jurisdiction. ECF No. 300, at 1. The sole member of NYW
is (and, more to the point, at the time the initial complaint was filed, was) New York Wheel
Mezz, LLC, whose sole member, in turn, is New York Wheel Investor LLC (“NYW Investor”).
ECF No. 328-1; see also ECF No. 341-1. NYW Investor, in turn, has at least twenty members,

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many of whom are limited liability companies with members of their own. See ECF No. 328-3.
At least one NYW Investor member, Houlihan Lokey Capital Inc. (“Houlihan Lokey”), is a
citizen of California, ECF No. 328-5, at 15, 28; ECF No. 328-6; ECF No. 328-7, of which
Defendant Mammoet USA North, Inc. is also a citizen, see ECF No. 214, ¶ 15. 1 Other members
of NYW Investor have addresses in New York, Illinois, Connecticut, Maryland, Texas, and
Massachusetts. See ECF No. 328-5. And on top of that, at least two NYW Investor members (of
which Richard Marin, the CEO of NYW, was a director at the time this suit was filed) were
foreign citizens. See id. at 6, 27; ECF No. 328-8, at 3; ECF No. 328-10, at 1. The net result is
that, contrary to the allegations in all four complaints, the Court did not have diversity
jurisdiction after all. With NYW’s consent, the Court therefore dismissed all claims,
counterclaims, and third-party claims. ECF Nos. 303, 305. 2
Thereafter, the Moving Defendants indicated that they “intend[ed] to pursue sanctions
based on the failure of NYW to disclose jurisdictional facts that reveal the absence of diversity
jurisdiction until three years of litigation had passed.” ECF No. 306, at 6. In anticipation of such
a motion, they sought discovery from NYW and brought a motion to compel the production of
certain documents related to the jurisdictional analysis that NYW had withheld on the basis of
attorney-client privilege and/or the work product doctrine. ECF Nos. 312, 313. The Court

1

In an earlier letter, NYW indicated that a member of one of its parents is also a citizen of
Florida, see ECF No. 300, at 1, of which Defendant Starneth LLC is a citizen, ECF No. 214,
¶ 17. This Florida member is not raised by any party here, so the Court will not address it
further.

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Even before the case was dismissed, New York Metropolitan Regional Center, L.P. II —
the second plaintiff in the Third Amended Complaint — filed a new action in this Court pursuing
a substantively identical breach-of-contract claim against Mammoet USA Holding, Inc. See
Complaint, New York Metropolitan Regional Center, L.P. II v. Mammoet USA Holding, Inc., No.
20-CV-9477 (JMF) (S.D.N.Y. Nov. 11, 2020), ECF No. 1.

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denied that motion without prejudice, but indicated that if the Moving Defendants moved for
sanctions, NYW would have to elect whether to invoke a reliance-on-counsel defense — thus
waiving the attorney-client privilege and work product doctrine — or forego such a defense.
ECF Nos. 318, 324. On January 29, 2021, the Moving Defendants brought the present motion
for sanctions, seeking an award of attorney’s fees. ECF No. 326; Defs.’ Mem. 18 & n.20. After
reviewing the Moving Defendants’ motion, NYW concluded that it would oppose the motion
“without invoking a reliance-on-counsel defense or otherwise waiving the attorney-client
communication privilege or work product doctrine as to materials concerning the motion.” ECF
No. 333. The motion is now fully briefed and includes a short sur-reply filed by NYW that the
Court considers “only to the extent that [it] responds to arguments raised by [the Moving]
Defendants for the first time in their reply brief.” ECF No. 347.
DISCUSSION
Although “[s]anctions may be authorized by any of a number of rules or statutory
provisions,” Sakon v. Andreo, 119 F.3d 109, 113 (2d Cir. 1997), the Moving Defendants here
rely only on the Court’s inherent authority. Sanctions imposed pursuant to a court’s inherent
authority can “be made against an attorney, a party, or both,” Oliveri v. Thompson, 803 F.2d
1265, 1273 (2d Cir. 1986), but the Moving Defendants seek sanctions against only NYW, not its
former or current counsel, see Defs.’ Mem. 1, 3. A federal court’s inherent authority to impose
sanctions stems from its need “to manage [its] own affairs so as to achieve the orderly and
expeditious disposition of cases,” and “must be exercised with restraint and discretion.”
Chambers v. NASCO, Inc., 501 U.S. 32, 43-44 (1991) (internal quotation marks omitted). It
provides that “a court may assess attorney’s fees when a party has acted in bad faith, vexatiously,
wantonly, or for oppressive reasons.” Id. at 45-46 (internal quotation marks omitted). “The

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imposition of sanctions pursuant to a court’s inherent authority is . . . discretionary,” but courts
are cautioned to do so “only in rare circumstances.” Yukos Cap. S.A.R.L. v. Feldman, 977 F.3d
216, 235 (2d Cir. 2020).
“In order to impose sanctions pursuant to its inherent power, a district court must find
that: (1) the challenged claim was without a colorable basis and (2) the claim was brought in bad
faith, i.e., motivated by improper purposes such as harassment or delay.” Enmon v. Prospect
Cap. Corp., 675 F.3d 138, 143 (2d Cir. 2012) (internal quotation marks omitted). “[C]lear and
convincing evidence of bad faith is a prerequisite to an award of sanctions under the court’s
inherent power.” Yukos Cap., 977 F.3d at 235; see also Wilson v. Citigroup, N.A., 702 F.3d 720,
724 (2d Cir. 2012) (per curiam) (requiring “clear evidence that the challenged actions are
entirely without color and are taken for reasons of harassment or delay or for other improper
purposes” (cleaned up)). The bad-faith requirement has been interpreted “restrictively” so as “to
ensure that fear of an award of attorneys’ fees against them will not deter persons with colorable
claims from pursuing those claims.” Eisemann v. Greene, 204 F.3d 393, 396 (2d Cir. 2000) (per
curiam) (cleaned up) (citing cases); see also Mackler Prods. v. Cohen, 146 F.3d 126, 128 (2d
Cir. 1998) (describing as “troublesome” the fact that the “trial court may act as accuser, fact
finder and sentencing judge”). If sanctions are imposed, the Second Circuit demands “a high
degree of specificity in the factual findings” of the district court. Dow Chem. Pac. Ltd. v.
Rascator Maritime S.A., 782 F.2d 329, 344 (2d Cir. 1986).
Applying these standards here, the Court is compelled to deny the Moving Defendants’
motion for sanctions, troublesome as NYW’s error was. That is because even assuming
arguendo that NYW’s assertion of diversity jurisdiction was “without a colorable basis,” the
Moving Defendants have not proved, let alone by clear-and-convincing evidence, that the

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assertion was made “in bad faith, i.e., motivated by improper purposes such as harassment or
delay.” Enmon, 675 F.3d at 143 (internal quotation marks omitted). Notably, the Moving
Defendants concede that they are unable to identify any improper purpose — by inference or
otherwise — that motivated NYW’s error. ECF No. 339 (“Defs.’ Reply”), at 10. Instead, they
rely solely on the gravity of the error itself to support an inference of bad faith. Defs.’ Mem. 1718. But given the complexity of NYW’s membership, the Court cannot say that the assertion of
diversity jurisdiction was “so completely without merit as to require the conclusion that [it] must
have been undertaken for some improper purpose.” Schlaifer Nance & Co. v. Est. of Warhol,
194 F.3d 323, 336 (2d Cir. 1999) (internal quotation marks omitted); see Int’l Techs. Mktg., Inc.
v. Verint Sys., Ltd., 991 F.3d 361, 369 (2d Cir. 2021) (holding that a court’s focus when
evaluating the propriety of sanctions should not be on the “effect of the misrepresentation” at
issue, but rather on “the motive behind it”); Sierra Club v. U.S. Army Corps of Eng’rs, 776 F.2d
383, 390 (2d Cir. 1985) (noting that “neither meritlessness alone nor improper purpose alone will
suffice” to support an award of attorney’s fees under the Court’s inherent powers). That is, the
record gives no indication that NYW’s error, although serious and consequential, was anything
more than an “honest” mistake. Gal v. Viacom Int’l, Inc., 403 F. Supp. 2d 294, 308 (S.D.N.Y.
2005) (Rule 11 sanctions case). It follows that the Court cannot conclude, with “a high degree of
specificity,” that NYW acted in bad faith. Wolters Kluwer Fin. Servs., Inc. v. Scivantage, 564
F.3d 110, 114 (2d Cir. 2009).
The Moving Defendants cite authority suggesting that a court need not identify a
“specific[] . . . improper purpose” in order to impose sanctions. See Defs.’ Mem. 17 n.19
(quoting Craig v. UMG Recordings, Inc., No. 16-CV-5439 (JPO), 2019 WL 2992043, at *2
(S.D.N.Y. July 9, 2019) (imposing sanctions pursuant to 28 U.S.C. § 1927)). But Craig is

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distinguishable. In Craig, Judge Oetken sanctioned the notorious Richard Liebowitz for filing a
meritless motion to disqualify an expert, “[w]ith the full knowledge” that a necessary element of
the motion was lacking. Craig v. UMG Recordings, Inc., 380 F. Supp. 3d 324, 339 (S.D.N.Y.
2019), reconsideration denied, 2019 WL 2992043. On that basis, Judge Oetken was able to infer
that Liebowitz was behaving in bad faith. Here, however, the Moving Defendants concede that
they are unable to identify any bad-faith motive for NYW’s error, and there is no basis to infer
that the jurisdictional error was anything other than a good-faith mistake. In fact, NYW’s
situation is more analogous to that of the client in Craig, whom Judge Oetken declined to
sanction absent “any particularized showing of bad faith” and who, as a “layperson,” “lack[ed]
the legal acumen to assess the viability of [the] . . . motion under the law” and “may not have
known that the motion was legally colorless before agreeing to its filing.” Id.
The remaining authorities that the Moving Defendants cite all involved facts significantly
different from and more egregious than those here. Unlike this case, many involved misconduct
before the court itself, see, e.g., New York v. Operation Rescue Nat’l, 80 F.3d 64, 72 (2d Cir.
1996) (affirming an inference of bad faith where the attorney “insisted on viewing an entire
hour-length videotape” during a hearing, “even though there was no relevant matter on the tape
that was not cumulative of its first fifteen minutes” and the attorney “had several prior
opportunities to view the tape outside of court”); Dux S.A. v. Megasol Cosm. GmbH, No. 03-CV8820 (RO), 2006 WL 44007, at *2 (S.D.N.Y. Jan. 9, 2006) (involving, inter alia, a party’s
“troubl[ing]” failure to bring two “highly relevant” foreign court decisions to the court’s
attention), or gross legal errors, see, e.g., In re 60 E. 80th St. Equities, Inc., 218 F.3d 109, 116
(2d Cir. 2000) (finding an inference of bad faith where a debtor “clearly lacked standing to
challenge [a] sale”). Had NYW alleged that it was a California citizen and — notwithstanding

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that allegation — concluded that there was diversity jurisdiction, the Court would be more
inclined to sanction NYW (or its counsel). But NYW’s error was factual in nature and sprung
from its complex, multi-leveled membership. The Moving Defendants cite no authority
supporting an inference of bad faith in such a situation. Even those cases most analogous to
NYW’s — where a party raised a claim for which an otherwise necessary factual predicate was
absent — involved at least some evidence from which it could be inferred that the sanctioned
party raised the claim knowing about the absent factual predicate. See, e.g., id. (noting, inter
alia, that the attorney made a claim predicated on a bankruptcy trustee’s failure to attempt to
collect from debtors where such an allegation was openly contradicted by a “record . . . of which
[he] must have been aware”); Craig, 380 F. Supp. 3d at 339 (finding an inference of bad faith
where an attorney made a motion to disqualify an expert “[w]ith the full knowledge” that a
necessary element for his motion to succeed was missing).
To be sure, there is a strong case to be made that NYW was negligent or even reckless in
alleging its citizenship. Although neither Houlihan Lokey nor the two foreign investors were
listed in the original operating agreement of New York Wheel LLC — the managing member of
NYW Investor, see ECF No. 337-1 — it is clear from the face of NYW Investor’s operating
agreement that Houlihan Lokey and the two foreign investors were members of NYW Investor,
see ECF No. 328-5, at 27-28. Moreover, that operating agreement lists members with addresses
in Guernsey, Cyprus, Connecticut, Illinois, Maryland, Massachusetts, and Texas. See id. at 2729. These addresses are not themselves proof of citizenship, but they should have prompted a
reasonable inquiry into the citizenship of NYW Investor’s members. Simple searches of public
records would have revealed to NYW that its membership went beyond New York and New
Jersey citizens. See, e.g., ECF No. 328-6; ECF No. 328-7; ECF No. 328-10; ECF No. 331-1.

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Making matters worse, as the Moving Defendants point out, at the time this suit was originally
filed, the CEO of NYW was himself also a director of one of NYW Investor’s foreign members.
Defs.’ Mem. 5; ECF No. 328-8, at 3. In short, NYW did not exercise due diligence when
making (and then continuing to repeat) the allegations about its citizenship.
But this is not enough to support a finding of bad faith. Although the Second Circuit has
created an exception to the bad-faith requirement for cases of “a lawyer’s negligent or reckless
failure to perform his or her responsibility as an officer of the court,” United States v. Seltzer,
227 F.3d 36, 41 (2d Cir. 2000) (addressing sanctions imposed on an attorney for tardiness in
returning to court for a jury verdict), the exception does not extend to instances where the
“conduct . . . took place during litigation and was taken on behalf of the client,” Laface v. E.
Suffolk BOCES, No. 2:18-CV-1314 (ADS) (AKT), 2019 WL 4696434, at *5 (E.D.N.Y. Sept. 26,
2019), or — by extension — actions taken by a client in pursuit of its own interests. Thus,
NYW’s negligence or recklessness in failing to properly conduct its jurisdictional analysis does
not support a showing of bad faith. That is all the more true in light of the fact that it was NYW
(albeit through counsel and on the eve of discovery, which might have revealed its membership)
that sua sponte first brought its error to the Court’s attention. See ECF No. 298, at 4. Taken
together, then, the Moving Defendants fail to demonstrate NYW’s bad faith by clear-andconvincing evidence. 3

3

The Moving Defendants fault NYW for failing to put forth evidence to “support[] any of
the arguments, suggestions or speculations put forward in its brief” and asks the Court, on that
basis, to draw an adverse inference — namely, that if NYW had offered such evidence, it would
have been unfavorable to its position. Defs.’ Reply 2. The Court declines to do so. NYW
plausibly explains that it did not “submit[] declarations from its principals . . . because any sworn
statement of substance would likely trigger an argument by [the Moving] Defendants that the
privilege has been or needs to be waived for the sworn statement to be credited.” ECF No. 334
(“Pl.’s Opp’n”), at 5 n.1. And because NYW elected to forego a reliance-on-counsel defense,
ECF No. 333, it is entitled to invoke the attorney-client and related privileges. Drawing an
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CONCLUSION
For the foregoing reasons, the Moving Defendants’ motion for sanctions is DENIED.
One final housekeeping matter remains. The Court granted the parties leave to file certain
documents in connection with the motion under seal pending a decision on the underlying
motion. See ECF Nos. 330, 343. It is well established that filings that are “relevant to the
performance of the judicial function and useful in the judicial process” are considered “judicial
documents” to which a presumption in favor of public access attaches. Lugosch v. Pyramid Co.
of Onondaga, 435 F.3d 110, 119 (2d Cir. 2006) (internal quotation marks omitted). Assessment
of whether the presumption in favor of public access is overcome must be made on a documentby-document basis, see, e.g., Brown v. Maxwell, 929 F.3d 41, 48 (2d Cir. 2019), and the mere
fact that a court does not rely upon a document in adjudicating a motion does not remove it from
the category of “judicial documents,” id. at 50-51. Finally, the mere fact that information is
sealed or redacted by agreement of the parties is not a valid basis to overcome the presumption.
See, e.g., United States v. Wells Fargo Bank N.A., No. 12-CV-7527 (JMF), 2015 WL 3999074, at
*4 (S.D.N.Y. June 30, 2015). That is, a party must demonstrate reasons to justify sealing or
redaction separate and apart from a private agreement to keep information confidential.
Accordingly, any party that believes, in light of the foregoing principles, that any
materials currently under seal or in redacted form should remain under seal or in redacted form is
ORDERED to show cause in writing, on a document-by-document basis, why doing so would be
consistent with the presumption in favor of public access no later than two weeks from the date

adverse inference against NYW in such circumstances would be inappropriate. See, e.g.,
Nabisco, Inc. v. PF Brands, Inc., 191 F.3d 208, 226 (2d Cir. 1999), abrogated on other grounds
by Moseley v. V Secret Catalogue, Inc., 537 U.S. 418 (2003); In re: Gen. Motors LLC Ignition
Switch Litig., No. 14-MD-2543 (JMF), 2015 WL 8130449, at *3 (S.D.N.Y. Dec. 3, 2015).

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of this Opinion and Order. Proposed redactions should be “narrowly tailored” to achieve the
aims that justify sealing. See, e.g., Brown, 929 F.3d at 47 (internal quotation marks omitted).
Finally, each party shall ensure that all sealing and redaction requests are made in accordance
with Rule 7 of the Court’s current Individual Rules and Practices in Civil Cases (and the
District’s ECF Rules and Instructions, the relevant parts of which were amended in 2020). If, by
the deadline, no party contends that a particular document should remain under seal or in
redacted form, then the parties shall promptly file that document publicly on ECF.
The Clerk of Court is directed to terminate ECF No. 326.
SO ORDERED.
Dated: June 29, 2021
New York, New York

__________________________________
JESSE M. FURMAN
United States District Judge

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