Knopf et al v. Esposito et al

Filing 160

OPINION & ORDER.....The Knopfs May 21, 2018 motion for Rule 60(b) relief is granted solely to the extent of reducing the sanctions award in favor of Dorsey to $88,928.75, jointly and severally against Berry and the Knopfs, and vacating the sanctions award in favor of Esposito. The motion is otherwise denied. (Signed by Judge Denise L. Cote on 7/25/2018) (gr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
NORMA KNOPF and MICHAEL KNOPF,
:
:
Plaintiffs, :
-v:
:
FRANK M. ESPOSITO, DORSEY & WHITNEY
:
LLP, NATHANIEL H. AKERMAN, EDWARD S. :
FELDMAN, and MICHAEL HAYDEN SANFORD, :
:
Defendants. :
:
-------------------------------------- X

17cv5833(DLC)
OPINION & ORDER

For the plaintiffs:
Eric W. Berry
Berry Law PLLC
745 Fifth Avenue, 5th Floor
New York, NY 10151
Gary Greenberg
666 Fifth Avenue, 27th Floor
New York, NY 10103
For defendant Frank M. Esposito:
Frank M. Esposito
Esposito, PLLC
275 Madison Avenue, 14th Floor
New York, NY 10016
For defendants Dorsey & Whitney LLP, and Nathaniel H. Akerman:
Nathaniel H. Akerman
Amanda M. Prentice
Dorsey & Whitney, LLP
51 West 52nd Street
New York, NY 10019
Peter M. Lancaster
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402
For defendant Edward S. Feldman:
Edward S. Feldman
570 Grand Avenue

Englewood, NJ 07631
For defendant Michael Hayden Sanford:
Michael Hayden Sanford
23 McKinley Road
Montauk, NY 11954
DENISE COTE, District Judge:
On December 7, 2017, the Court dismissed this action.

In

March of this year, it imposed sanctions on the plaintiffs,
Michael and Norma Knopf (the “Knopfs”), and on their attorney
Eric W. Berry.

On May 14, the Knopfs and Berry filed a motion

seeking relief under Rule 60(b), Fed. R. Civ. P.

For the

reasons that follow, the Rule 60(b) motion is granted in part.

Background
The Opinions in this action of December 7, 2017, and March
5, 2018 are incorporated by reference.

See Knopf v. Esposito,

No. 17cv5833(DLC), 2017 WL 6210851 (S.D.N.Y. Dec. 7, 2017)
(“Motion to Dismiss Opinion”); Knopf v. Esposito, No.
17cv5833(DLC), 2018 WL 1226023 (S.D.N.Y. Mar. 5, 2018)
(“Sanctions Opinion”).

Only facts necessary to resolve the

present motion for relief from judgment will be discussed.
This case arises out of two real estate loans made by the
Knopfs to Pursuit Holdings, LLC (“Pursuit”), a company
controlled by defendant Michael Hayden Sanford, in 2006 for the
purchase of several properties (the “Properties”) in New York

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City, including an apartment on East 67th Street (“PHC”).

The

Knopfs filed an action in state court in 2009 (the “State Court
Action”) in which they claimed that Sanford and Pursuit breached
the loan agreements by failing to grant the Knopfs mortgages on
the Properties.
The Knopfs obtained summary judgment on their breach of
contract claims against Pursuit and Sanford in the State Court
Action in December 2014.
(1st Dep’t 2014).

See Knopf v. Sanford, 1 N.Y.S.3d 18

It was not until over three years later, in

February of 2018, however, that the Knopfs were granted judgment
against Pursuit in the amount of $8,336,448.

See Knopf v.

Sanford, No. 113227/09, 2018 WL 1769299 (N.Y. Sup. Feb. 9,
2018).

In the interim, four lawsuits were filed in federal

court related to the Properties.

This federal action alleged

that the defendants, Sanford and attorneys who had represented
Sanford or Pursuit in connection with the sale of PHC, had
conspired to violate the Knopfs’ due process rights by bribing
Esposito to obtain an opinion from a Court Employee with the New
York State Supreme Court Appellate Division, First Department,
that allowed PHC to be sold.
The central events in the State Court Action that underlie
this accusation include the following.

The Knopfs obtained an

order in the State Court Action (the “October 2015 Escrow
Order”) directing that PHC could be sold but that the proceeds

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had “to be placed in escrow pending further court order.”
Motion to Dismiss Opinion, 2017 WL 6210851, at *2.

See

On November

12, 2015, the Appellate Division denied the Knopfs’ motion for a
preliminary injunction against the sale of PHC (the “November
2015 Order”).

On December 29, 2015, the Appellate Division

denied Pursuit and Sanford's motion to vacate the October 2015
Order (“December 2015 Order”).
Meanwhile, between 2013 and 2016, Sanford had attempted to
sell PHC to Michael Phillips.

See Knopf v. Phillips, No.

16cv6601(DLC), 2017 WL 6561163, at *3-4 (S.D.N.Y. Dec. 22,
2017).

Phillips and Sanford signed a contract for the sale of

PHC in late December 2013.

See id. at *3.

Phillips refused to

close on the sale of PHC while restraints on the sale remained
in place.

See id.

Sanford retained defendant attorney Frank M. Esposito and,
the Knopfs allege, promised him payment in exchange for
soliciting his wife, who worked for the state court system (the
“Court Employee”) to opine that the November 2015 Order removed
restraints on the sale of PHC.
2017 WL 6210851, at *2.

See Motion to Dismiss Opinion,

Sanford arranged to have two of the

defendants in this action, attorneys Nathaniel H. Akerman of the
law firm Dorsey & Whitney LLP (“Dorsey”) and Edward S. Feldman
contact the Court Employee to obtain her opinion regarding the
status of encumbrances on PHC.

See id. at *3.

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Akerman had

previously represented Sanford in connection with related
litigation filed by the Knopfs, and Feldman had been retained by
Pursuit to assist in the sale of PHC.

See id. at *3.

On January 12, 2016, a telephone call was placed from the
law offices of Dorsey to the direct line of the Court Employee.1
During the telephone call, Akerman and Feldman identified
themselves as Sanford’s attorneys and asked the Court Employee
to explain the meaning of the October 2015 Escrow Order and the
November 2015 Order.

See id.

The Court Employee explained

that, after the November 2015 Order denying the Knopfs’ motion
for a preliminary injunction, there were no longer any
encumbrances on the sale of PHC.

See id.

PHC was sold on February 1, 2016, for $3 million.
proceeds were placed in escrow at that time.

No

On March 24, the

Appellate Division issued a preliminary injunction against any
further dissipation of the real estate assets that Pursuit had
acquired from the Knopfs.

See Knopf v. Sanford, 26 N.Y.S.3d 866

(1st Dep’t 2016).
On June 16, the Appellate Division denied the Knopfs’
February 2016 motion for contempt sanctions against Pursuit,
Sanford, and the law firm of Dechert LLP, which had represented

As explained below, this fact was disclosed to this Court after
it issued the Motion to Dismiss and Sanctions Opinions in this
action.
1

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Sanford and Pursuit in the State Court Action.

Within hours,

the Appellate Division issued a revised order that included an
explanation of the denial (“Revised June 2016 Order”).

The

Revised June 2016 Order provides in relevant part:
Plaintiffs-appellants seek an order of contempt
against defendants and their counsel for allegedly
violating a temporary restraining order issued by a
single justice of this Court on October 22, 2015
(TRO);
...
The motion for contempt is denied because the TRO was
vacated once plaintiffs’ prior motion for a
preliminary injunction was denied . . . .
The Knopfs’ motion for reargument and vacatur of the Revised
June 2016 Order was denied in November 2017.

Procedural History
The defendants’ motion to dismiss this federal action was
granted on December 7, 2017.
2017 WL 6210851.

See Motion to Dismiss Opinion,

Attorneys’ fees and sanctions were granted in

favor of Dorsey and Esposito, against the Knopfs and their
attorney Berry, on March 5, 2018, and final judgment was entered
in favor of the defendants on March 8.
2018 WL 1226023.

See Sanctions Opinion,

The Knopfs filed notices of appeal on December

28, 2017 and March 8, 2018.
On April 19, 2018, a representative of the New York State
Unified Court System Office of Court Administration (“OCA”)

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contacted Chambers to inquire how to deliver to this Court
materials reflecting an OCA investigation related to this
litigation.
Report.

On April 20, the Court received, ex parte, the OCA

Among other things, the OCA Report reveals that one of

the assumptions in the Motion to Dismiss Opinion was in error.
Namely, the Motion to Dismiss Opinion had assumed -- as alleged
in the FAC -- that the January 12, 2016 telephone call had been
placed from Dorsey to a general telephone number of the state
court, after which an unidentified court employee transferred
the call to the Court Employee.

The OCA Report, however,

identifies three telephone calls from Dorsey that were made
directly to the Court Employee’s work number on January 12,
2016.
This Court issued an Order on April 24, 2018, which
explained that it had received the OCA Report2 and indicated to
the Court of Appeals that the Court would entertain a motion for
relief from judgment pursuant to Rule 60(b), Fed. R. Civ. P.
Akerman, Dorsey, and Esposito filed motions on May 3 seeking to
amend the Motion to Dismiss Opinion and Sanctions Opinion to the
extent of correcting the references to the January 12, 2016
telephone call, which had been described as being placed to the
state court’s general telephone number and transferred by an

The complete OCA Report is filed under seal with this Court.
redacted copy is filed on the public docket.
2

7

A

unidentified court employee to the Court Employee.

The Knopfs,

together with Berry, filed a motion to set aside judgment and
for leave to file a SAC on May 14, 2018.
remanded the case on May 18.

The Court of Appeals

A Scheduling Order of May 21

directed the defendants to respond to the Knopfs’ motion, which
became fully submitted on June 8.

Discussion
Pursuant to Rule 60(b), Fed. R. Civ. P., “the court may
relieve a party or its legal representative from a final
judgment, order, or proceeding if one of several enumerated
bases for relief is established.”

Thai-Lao Lignite (Thailand)

Co. v. Gov’t of Lao People’s Democratic Republic, 864 F.3d 172,
182 (2d Cir. 2017) (citation omitted).

The Knopfs assert that

they are entitled to relief pursuant to three grounds:
(1) mistake, inadvertence, surprise, or excusable
neglect;
(2) newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial under Rule 59(b); [and]
(3) fraud (whether previously called intrinsic or
extrinsic), misrepresentation, or misconduct by an
opposing party.
Fed. R. Civ. P. 60(b).
The parties do not dispute that the OCA Report constitutes
newly discovered evidence within the meaning of Rule 60(b)(2).

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They differ, however, as to whether the OCA Report reveals
“fraud . . . , misrepresentation, or misconduct” by the
defendants within the meaning of Rule 60(b)(3), and as to what
relief, if any, should be granted.

The Knopfs move to have the

final judgment and sanctions award vacated, and to file a second
amended complaint (“SAC”).

The defendants contend that the

dismissal and sanctions order should stand.

For the reasons

that follow, the Knopfs’ Rule 60(b) motion is granted to the
extent of reducing the sanctions award in favor of Dorsey and
vacating the sanctions award in favor of Esposito.
I. The Motion to Dismiss Opinion and Leave to Amend
The Motion to Dismiss Opinion gave two principal grounds
for dismissing the Knopfs’ first amended complaint (“FAC”).
First, “the gravamen of the alleged harm stems not from any
conspiracy but from orders duly issued in 2015 by the Appellate
Division.”

Motion to Dismiss Opinion, 2017 WL 6210851, at *6.

Second, “there [wa]s no plausible claim [in the FAC] of any
conspiratorial agreement in connection with the January 12, 2016
conversation.”

Id. at *7.

Only the second ground of the Motion to Dismiss Opinion is
undermined by the OCA Report.

That Report discloses that the

January 12, 2016 call was placed from Dorsey to the Court
Employee directly.

This additional fact makes more plausible

the existence of a conspiratorial agreement among at least some

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of the defendants to have Esposito’s wife, who is the Court
Employee, offer an opinion that would permit the sale of PHC to
proceed unencumbered by any court-issued restraints.

But the

OCA Report does not undermine the principal ground for
dismissing the FAC, the fact that the Appellate Division’s
orders had removed any restraint on the sale of PHC.

To the

extent there is any ambiguity for a person unfamiliar with the
procedures and terminology of the New York proceedings, the June
2016 Orders render that conclusion inescapable.

Accordingly,

there is no basis to vacate the Motion to Dismiss Opinion.
The Knopfs advance two principal arguments to attack the
first ground of the Motion to Dismiss Opinion.

First, they

argue that the numbering on the Appellate Division’s orders
reveal that the denial of the preliminary injunction did not
disturb the prior ruling ordering proceeds from the sale of PHC
to be escrowed.

Second, they argue that a plaintiff need not

allege prejudice to state a claim of § 1983 conspiracy.
These arguments are not dependent on any new evidence, on
the defendants having committed fraud, or on an excusable
mistake made by the Knopfs.

Accordingly, these arguments do not

provide a ground to provide Rule 60(b) relief from the Motion to
Dismiss Opinion.

See State Street Bank & Trust Co. v.

Inversiones Errazuriz Limitada, 374 F.3d 158, 176-78 (2d Cir.
2004) (addressing standards for relief under Rule 60(b)(1), (2),

10

and (3)).
These arguments also fail on the merits.

The Knopfs

correctly note that the motion numbers on the Appellate Division
orders are different.3

They fail to confront, however, the fact

that the Revised June 2016 Order explains that interim relief
provided by a TRO -- the temporary restraining order requiring
the proceeds of the sale of PHC to be escrowed -- expired when a
request for a preliminary injunction was denied.
The Knopfs principally rely on In re Motors Liquidation
Corp., 829 F.3d 135 (2d Cir. 2016), to support their motion.
Contrary to their assertions, though, the Second Circuit
expressly did not decide whether prejudice is necessary to state
a claim for due process deprivations.

See id. at 163.

But,

even if prejudice is not required to state a claim for
deprivation of due process, the Knopfs have failed to show that
they had a right to participate in the January 12, 2016
telephone call.

The Court Employee simply gave an accurate

description of duly issued court orders, specifically the effect
of the November 2015 Order on the October 2015 Escrow Order.
That her account was correct is confirmed by the June 2016

The November 2015 Order is marked M-3660. The October 2015
Escrow Order and the December 2015 Order are marked M-5942. The
Knopfs contend that this reveals that the November 2015 Order
could not have superseded the October 2015 Escrow Order because
the November 2015 Order resolved an earlier motion than the
October 2015 Escrow Order.
3

11

Order.

The Knopfs’ due process rights were not violated because

they were excluded from that call.

New York state court process

gave them avenues of redress from the November 2015 Order.

They

had the right to seek reconsideration of the November 2015
Order, or to appeal that order.

Due process did not require

their participation in an explanatory telephone call to court
staff.
The Knopfs also move for leave to file a SAC, which they
have submitted as an exhibit to their motion.

The SAC

principally adds factual allegations derived from the OCA
Report.

Leave to amend is denied for futility because the SAC

does not overcome the fundamental problem with the alleged
conspiracy to violate the Knopfs’ due process rights, namely
that the injury was caused by the November 2015 Order.

Because

of the Revised June 2016 Order, it is not plausible that the
January 12, 2016 telephone call altered the Knopfs’ legal
rights.

The SAC would accordingly fail to state a claim of

conspiracy to violate the Knopfs’ due process rights.
II. The Sanctions Opinion
The Knopfs move for vacatur of the Sanctions Opinion on the
ground that the OCA Report reveals that this lawsuit was not
frivolous, and on the ground that the OCA Report reveals that
the defendants have acted inequitably.

For the following

reasons, the sanctions award in favor of Dorsey is reduced to

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$88,928.75, and the sanctions award in favor of Esposito is
vacated.
A. Sanctions in Favor of Dorsey
Dorsey was granted $177,857.50, jointly and severally
against Berry and the Knopfs, under Section 1927 and Section
1988.

For the following reasons, this award is reduced to

$88,928.75.
The Sanctions Opinion granted Dorsey legal fees against
Berry under Section 1927 on the ground that this action was part
of a pattern by Berry of prosecuting meritless claims against
individuals and entities associated with Sanford solely because
of that association.

See 2018 WL 1226023, at *4-6.

Among other

things, the Sanctions Opinion explained that this action was one
of four federal lawsuits brought against Sanford and his
associates, and that the only federal claim in this action was
frivolous because of the Revised June 2016 Order.
*5.

See id. at

Moreover, there is uncontroverted evidence that Berry lied

on the record of a deposition.

See id. at *6.

The Sanctions Opinion also granted Dorsey legal fees under
Section 1988 against the Knopfs because Dorsey was a prevailing
party and because this action was frivolous when it was filed.
See id. at *6.

The principal basis for this conclusion was that

“there was no colorable basis for the Knopfs to claim in [this
a]ction they filed in August 2016 that [the] January 2016

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telephone call did anything other than confirm the procedural
posture of the State Court Action.”

Id.

The OCA Report shows that one ground given for finding this
lawsuit frivolous was reached in error.

The Sanctions Opinion

assumed that there was no plausible link between the Court
Employee and any alleged conspiracy, based on the allegation in
the FAC, confirmed in a deposition by Akerman, that Akerman had
called a general court number and been, in essence, randomly
transferred to the Court Employee.

The OCA Report indicates

that Akerman’s testimony to that effect was wrong and Akerman no
longer asserts that he reached the Court Employee by calling a
general court number.

He admits he was mistaken.

To this day,

Akerman does not remember obtaining the Court Employee’s direct
number.

He asserts that he never met Esposito before the Knopfs

filed the instant action, has never spoken to the Court Employee
other than on January 12, 2016, and did not know at the time of
the call that she was married to a lawyer who represented
Sanford.
Despite the error in the Sanctions Opinion, Dorsey is still
entitled to a portion of its fees, awarded jointly and severally
against Berry and the Knopfs, respectively, under Section 1927
and Section 1988.

The OCA Report does not undermine the

conclusion that this action was frivolous at the time it was
filed.

Before this action was filed, the Revised June 2016

14

Order had made clear that there were no restraints on the sale
of PHC after the November 2015 Order.

But, in light of the fact

that one of the two grounds for finding the suit frivolous was
revealed to be in error, the Court finds it appropriate to award
Dorsey one-half of the fees it has requested.
The equities support the imposition of fees against Berry
individually and against the Knopfs in this action.

Berry has

repeatedly acted in bad faith throughout this litigation.

Berry

falsely stated five times during Sanford’s deposition that he
was not recording that deposition, but later emailed a video
recording of Sanford’s deposition to Esposito in order to
threaten him.

See id. at *3.

And, this action was “filed to

unreasonably and vexatiously multiply proceedings against
Sanford and his former lawyers such that fees under Section 1927
are warranted.”

Id. at *5.

This conduct is sanctionable under

Section 1927.
Moreover, this action was part of a pattern of lawsuits
apparently filed to harass associates of Sanford because of a
failed real estate investment deal between the Knopfs and
Sanford.

As a result, the Knopfs’ motion to vacate the

sanctions award in favor of Dorsey is granted solely to the
extent of reducing the sanctions to $88,928.75, for which Berry
and the Knopfs shall be jointly and severally liable.

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B. Sanctions in Favor of Esposito
The Sanctions Opinion granted Esposito $20,000 against
Berry individually under the Court’s inherent powers.
WL 1226023, at *7.

See 2018

The Sanctions Opinion noted that Berry

targeted Esposito and his wife with threats, including by
sending Esposito a recording that Berry illicitly took of
Sanford’s deposition.

See id.

The Sanctions Opinion concluded

that “Berry’s sole purpose in adding Esposito to th[is action]
was to harass Esposito, to deter other attorneys from
representing Sanford, and to extract settlements from parties
cowed by his inflammatory accusations.”

Id.

A court must exercise its inherent power to sanction
improper conduct by litigants or attorneys “with restraint and
discretion.”

Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991).

Further, “a court considering sanctions can and should consider
the equities involved before rendering a decision.”

Schlaifer

Nance & Co. v. Estate of Warhol, 194 F.3d 323, 341 (2d Cir.
1999).
Berry and the Knopfs do not attempt to dispute that Berry
engaged in extensive bad faith conduct throughout this
litigation.

The OCA Report, however, discloses that Esposito

and his wife had discussed the State Court Action before she
received the January 12, 2016 telephone call, that she violated
state court procedures in responding to the questions posed by

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the attorneys in that call, and that she did not promptly
disclose the call to anyone in the Appellate Division, as she
should have done.

When later interviewed about the call, she

did not immediately disclose Esposito’s involvement in the
matter.

In light of the many questions raised by the OCA Report

about Esposito’s role in these events, an award of sanctions in
his favor under the Court’s inherent powers is unwarranted.

The

sanctions award in favor of Esposito is vacated.
III. Sanctions Against the Defendants
The Knopfs move for sanctions against Dorsey and Akerman.
The fact remains that the Knopfs filed a groundless lawsuit.
After the June 2016 Order, there was no plausible basis for the
Knopfs to allege that the January 12, 2016 telephone call
deprived them of any rights.

In addition, the Knopfs and Berry

have not attempted to refute or even to explain the bad faith
conduct undertaken by Berry throughout this and related
litigation, as detailed in the Sanctions Opinion.

The Court

accordingly declines to exercise its discretion to award
sanctions against the defendants.

Conclusion
The Knopfs’ May 21, 2018 motion for Rule 60(b) relief is
granted solely to the extent of reducing the sanctions award in
favor of Dorsey to $88,928.75, jointly and severally against

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Berry and the Knopfs, and vacating the sanctions award in favor
of Esposito.
Dated:

The motion is otherwise denied.

New York, New York
July 25, 2018
__________________________________
DENISE COTE
United States District Judge

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