Weiss v. Yotta Technologies, Inc.

Filing 82

OPINION AND ORDER re: 65 MOTION for Sanctions . filed by Yotta Technologies, Inc., 64 LETTER MOTION to Seal addressed to Judge J. Paul Oetken from Ahmed H. Khattab dated November 30, 2023. filed by Yotta Technologies, Inc., 66 MOTION for Sanctions . filed by Yotta Technologies, Inc., 72 LETTER MOTION to Seal addressed to Judge J. Paul Oetken from Ahmed H. Khattab dated January 9, 2024. filed by Yotta Technologies, Inc. For the fo regoing reasons, Defendant Yotta's motion for sanctions under Rule 11 is DENIED. The Court continues to retain jurisdiction to consider and potentially impose further sanctions against Matthew Weiss pursuant to the Court's inherent author ity, as described in the Order to Show Cause above. Yotta's motions to seal Exhibits A, C, H, I, J, and K are GRANTED in part and DENIED in part. Yotta shall file, and shall serve on Weiss by mail, redacted versions of Exhibits H and K, and of any additional billing records, consistent with this Order by October 9, 2024. The Clerk of Court is directed to terminate the motions at ECF Numbers 64, 65, 66, and 72. SO ORDERED. (Signed by Judge J. Paul Oetken on 9/25/2024) (vfr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
MATTHEW WEISS,
22-CV-8569 (JPO)

Plaintiff,

OPINION AND ORDER

-vYOTTA TECHNOLOGIES, INC.,
Defendant.

J. PAUL OETKEN, District Judge:
Plaintiff Matthew Weiss brought this action against Yotta Technologies, Inc., claiming
that he was a victim of identity theft and that Yotta failed to promptly credit his account when
notified of allegedly unauthorized transfers of funds from his account with Yotta. Before the
Court is Yotta’s motion for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure
against Mr. Weiss and his attorney.
I.

Background
On October 7, 2022, Weiss, through his attorney, Raymond Nardo, filed the complaint in

this case. (ECF No. 1 (“Compl.”).) The complaint alleged the following:
x

In February 2022, Weiss opened an account with Yotta, which is a startup
financial saving platform that allows users to deposit funds and win prizes in the
form of a lottery. (Compl. ¶¶ 12-15.)

x

On six specific dates in July 2022, there were eleven fund transfers from Weiss’s
Yotta account, totaling $42,290, which Weiss did not authorize and from which
he did not benefit. (Compl. ¶¶ 16-19.)

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x

Weiss informed Yotta of the allegedly unauthorized transfers within sixty days.
(Compl. ¶¶ 17, 20.)

x

Yotta did not investigate Weiss’s claims or issue a provisional credit for the
allegedly unauthorized transfers. (Compl. ¶¶ 29-30.)

The complaint asserted claims against Yotta under the federal Electronic Fund Transfer Act
(EFTA), 15 U.S.C. § 1693 et seq., and New York state law. (Compl. ¶¶ 32-55.)
On July 23, 2023, Yotta filed an answer denying the allegations of the complaint,
asserting counterclaims for harassment and defamation, and requesting attorney’s fees and costs
for the filing of a frivolous and fraudulent lawsuit. (ECF No. 35.) The answer and
counterclaims described third-party discovery indicating that Weiss in fact had authorized the
eleven fund transfers himself. (Id. at 14.) It also noted that Weiss, represented by Nardo, had
filed at least eleven “copy-cat” lawsuits in the United States District Court for the Eastern
District of New York (EDNY) against various banks and other parties containing similar
allegations of identity theft. (Id. at 17-18.) And it described a pattern of harassing, threatening,
and offensive behavior by Weiss in his interactions with Yotta personnel. (Id. ¶¶ 12-25.)
On August 23, 2023, Weiss filed a motion to dismiss Yotta’s counterclaims under Rule
12(b)(6) of the Federal Rules of Civil Procedure. (ECF No. 45.)
On September 14, 2023, Raymond Nardo, counsel for Weiss, filed a letter motion
requesting “that the matter be stayed immediately so that I can file a letter motion, under seal, to
withdraw from this matter.” (ECF No. 50.)
On September 18, 2023, Yotta served Weiss’s counsel with a letter pursuant to Rule
11(c)(2). (ECF No. 65-9 (“Rule 11 Letter”).) The Rule 11 Letter (1) described third-party
discovery showing that Weiss himself had initiated the disputed transfers, thus disproving his

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claims, (2) discussed Weiss’s litigation history, including his filing of fifty cases in Florida state
court and eleven in the EDNY, and (3) enclosed a Florida arrest warrant for Weiss for falsely
reporting a crime. (Rule 11 Letter.) The Rule 11 Letter demanded that Weiss immediately
dismiss his claims with prejudice and remit Yotta’s legal fees, and threatened to seek sanctions
against Weiss, Nardo, and Nardo’s firm. (Id. at 9.)
Also on September 18, 2023, Nardo filed a motion to withdraw as counsel for Weiss,
together with a declaration noting “irreconcilable differences” with his client. (ECF Nos. 54,
55.) Yotta requested an opportunity to oppose the withdrawal motion and stated that it intended
to pursue Rule 11 sanctions against Weiss and Nardo. (ECF No. 56.)
On October 4, 2023, the Court held a telephone conference with counsel for the parties.
(See ECF No. 62 (“Conf. Tr.”).) Nardo, still counsel for Weiss, stated that he had offered to
Yotta to dismiss the case without prejudice and indicated that he was still willing to do so. (Id. at
6-7.) Nardo did not believe he had the authority to dismiss his client’s claims with prejudice.
(Id. at 6.) The Court inquired with Yotta’s counsel whether Yotta would consent to a dismissal
of all claims without prejudice, clarifying that the Court could retain jurisdiction to decide
Yotta’s anticipated sanctions motion. (Id. at 7, 15.) On October 25, 2023, Yotta stated in a letter
that the parties had agreed to dismissal of all claims “without prejudice as previously indicated at
the October 4, 2023 conference.” (ECF No. 60.) On October 29, 2023, the Court issued an order
(1) dismissing all claims and counterclaims in the case without prejudice, on consent of the
parties, (2) “retain[ing] jurisdiction to resolve any motion for attorney’s fees and/or other
sanctions,” and (3) setting a briefing schedule on Yotta’s proposed motion for Rule 11 sanctions.
(ECF No. 61.)

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Following briefing on Yotta’s motion for sanctions, the Court held an in-person hearing
on May 16, 2024. (See ECF No. 81.)
II.

Discussion
Yotta moves pursuant to Rule 11 for sanctions against Weiss and his counsel. Yotta

argues that Weiss’s claims are fabricated and that his counsel, Raymond Nardo, failed to conduct
a reasonable investigation into the factual basis for those claims. It contends that Nardo “knew
or should have known the claims were patently false” and that “[e]ven a minimal prefiling
inquiry would have irrefutably demonstrated that Plaintiff has a litigious history of inundating
court dockets with sham copy-cat complaints and a history of making false reports.” (ECF No.
66-1 at 17.) 1
A.

Rule 11

Rule 11 “explicitly and unambiguously imposes an affirmative duty on each attorney to
conduct a reasonable inquiry into the viability of a pleading before it is signed.” Gutierrez v. Fox,
141 F.3d 425, 427 (2d Cir. 1998). “If . . . the court determines that Rule 11(b) has been violated,

the court may impose an appropriate sanction on any attorney, law firm, or party that violated the
rule or is responsible for the violation.” Fed. R. Civ. P. 11(c)(1). In other words, “Rule 11

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Yotta’s letter motions to seal portions of Exhibits A, C, and H to its Rule 11 motion
(ECF No. 64), and to seal portions of Exhibits I, J, and K to its reply brief in support of its Rule
11 motion (ECF No. 72), are granted in part and denied in part. The motions are granted with
respect to Exhibits A, C, I, and J, which contain personal identifying information of Weiss and
are therefore properly redacted. The motions are granted in part and denied in part with respect
to portions of Exhibits H and K, which contain billing records of Yotta’s counsel. While the
qualitative descriptions of attorney work and conversations contained in those exhibits are
privileged, “overcom[ing] the presumption of access” to judicial documents, the “billing rates”
and “billed amounts” are not. See Atlanta Credit Opportunities Fund SPC v. Bolivarian Repub.
of Venez. No. 20-CV-8402, 2023 WL 7924626, at *1-2 (S.D.N.Y. 2023). Accordingly, Yotta is
directed to file, and to serve on Weiss by mail, redacted versions of Exhibits H and K—and any
additional billing records—by October 9, 2024.
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provides a vehicle for sanctioning an attorney, a client, or both.” United States v. Int’l Broth. of
Teamsters, Chauffers, Warehousemen & Helpers of Am., AFL-CIO, 948 F.2d 1338, 1343 (2d
Cir. 1991).
Rule 11 also has a safe harbor for would-be violators. A Rule 11 motion “must be
served” on the opposing party first, and it may not be filed with the Court if the challenged filing
“is withdrawn or appropriately corrected within 21 days after service” of the motion. Fed. R.
Civ. P. 11(c)(2).
The threshold dispute between the parties is whether Weiss and Nardo qualify for Rule
11’s safe harbor such that sanctions under that Rule are precluded. Nardo argues that his motion
to withdraw as counsel for Weiss satisfies the requirements of the safe harbor. But seeking to be
relieved as counsel is not “withdraw[ing]” or “correct[ing]” the improper pleading or filing
signed by the attorney. See DeFrancesco v. Mirador Real Est., No. 18-CV-4032, 2019 WL
5722120, at *5 (S.D.N.Y. July 15, 2019) (Katharine H. Parker, Mag. J.), report and
recommendation adopted, No. 18-CV-4032, 2022 WL 203147 (S.D.N.Y. Jan. 24, 2022) (“[T]he
filing of the motion to withdraw did not satisfy the purpose of the safe-harbor period—
withdrawal or correction of the allegedly problematic factual contention . . . .”); Heaston v. City
of New York, No. 19-CV-5569, 2022 WL 2106267, at *9 (E.D.N.Y. June 10, 2022) (“[T]he
purpose of the safe-harbor period . . . is to allow the targets of sanctions to withdraw or correct
[the improper filing], not simply withdraw from the case and wash their hands of the matter.”
(cleaned up)). Nardo’s attempt to withdraw as counsel was not sufficient to benefit from Rule
11’s safe harbor.
However, Nardo also agreed to dismiss all of Weiss’s claims without prejudice, in
communications with Yotta’s counsel and again during the October 4, 2023, conference with the

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Court—both within the twenty-one-day safe-harbor period. The Second Circuit has held that
moving for voluntary dismissal without prejudice satisfies the safe harbor provision of Rule 11,
even where the motion is “procedurally defective.” Thompson v. Steinberg, No. 21-2444, 2023
WL 353359, at *3-4 & n.2 (2d Cir. 2023) (summary order). In Mourabit v. Klein, cited in
Thomas, Judge Torres denied Rule 11 sanctions because “Plaintiff’s counsel’s [email] indicating
that he was prepared to file a notice of voluntary dismissal [brought] him within the safe harbor
provision.” 393 F. Supp. 3d 353, 364 (S.D.N.Y. 2019), vacated in part on other grounds on
reconsideration, No. 18-CV-8313, 2019 WL 4392535 (S.D.N.Y. Sept. 13, 2019). In Robinson v.
Alutiq-Mele, LLC—also cited with approval by the Second Circuit in Thompson—Judge Gold of
the Southern District of Florida found the defendant’s refusal to consent to voluntary dismissal
without prejudice during the safe harbor to be “contrary to the purpose of the safe harbor
provision, to allow a party to avoid sanctions by withdrawing or correcting the challenged
document.” 643 F. Supp. 2d 1342, 1351 (S.D. Fla. 2009); accord Carruthers v. Flaum, 450 F.
Supp. 288, 306 (S.D.N.Y. 2006) (“[A]s long as the plaintiff takes some step leading to the
withdrawal of the offending claim—whether offering to withdraw the claim or moving for leave
to withdraw them—Rule 11 will be satisfied, even if it takes longer for the requirements of Rule
41 to be completed.”).
While Nardo did not formally move for dismissal without prejudice, he did agree to
dismiss Weiss’s claims without prejudice within the twenty-one-day safe-harbor period. And
Yotta’s insistence on dismissal with prejudice made it clear that it would oppose a motion to
dismiss without prejudice. Nardo’s offer to dismiss without prejudice, while short of a proper
dismissal, as in Thompson, Mourabit, and Robinson, was sufficient to constitute compliance with
the safe harbor’s requirement to “withdraw” the defective pleading.

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Because Nardo and Weiss complied with the safe harbor of Rule 11, Yotta’s motion for
sanctions under Rule 11 must be denied.
B.

Inherent Authority

But that does not end the matter. While Yotta moved for sanctions solely under Rule 11,
this Court has “the inherent power to impose sanctions for the bad-faith conduct” of litigants—
and Rule 11 does not displace that power. Chambers v. NASCO, Inc., 501 U.S. 32, 46 (1991).
“A federal court may ‘exercise its inherent power to sanction a party or an attorney who has
acted in bad faith, vexatiously, wantonly, or for oppressive reasons.’” Rossbach v. Montefiore
Med. Ctr., 81 F.4th 124, 141 (2d Cir. 2023) (quoting Ransmeier v. Mariani, 718 F.3d 64, 68 (2d
Cir. 2013)). Importantly, “whereas each of the other mechanisms [such as Rule 11 and 28
U.S.C. § 1927] reaches only certain individuals or conduct, the inherent power extends to a full
range of litigation abuses.” Chambers, 501 U.S. at 46. That form of sanction power works “to
fill in the interstices” left by existing rules and statutes. Id. For example, “the amendment to
§ 1927 allowing an assessment of fees against an attorney says nothing about a court’s power to
assess fees against a party.” Id. at 48 (emphasis added). “The Supreme Court has made clear
that a district court has inherent authority to sanction parties appearing before it for acting in bad
faith, vexatiously, wantonly, or for oppressive reasons.” Sassower v. Field, 973 F.2d 75, 80-81
(2d Cir. 1992). Such sanctions must be imposed “with restraint and discretion.” Schlaifer Nance
& Co., Inc. v. Est. of Warhol, 194 F.3d 323, 334 (2d Cir. 1999). 2

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Rule 11’s safe-harbor provision does not override a district court’s inherent authority to
impose sanctions for bad-faith litigation conduct. While the Second Circuit has not explicitly
addressed this issue, it has implied that Rule 11 and inherent-authority sanctions operate
differently. For example, in Lawrence v. Richman Grp. of CT LLC, the Second Circuit vacated
an imposition of sanctions for failure to comply with the safe-harbor provision, but held that “the
court’s inherent authority” might “permit sanctions to be imposed for any conduct,” while
observing that its bad-faith requirement is higher than Rule 11’s allowance for “sanctions to be
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The subject of potential sanctions pursuant to the court’s inherent authority “must receive
specific notice of the conduct alleged to be sanctionable and the standard by which that conduct
will be assessed, and an opportunity to be heard on the matter, and must be forewarned of the
authority under which sanctions are being considered, and given a chance to defend himself
against specific charges.” Sakon v. Andreo, 119 F.3d 109, 114 (2d Cir. 1997) (cleaned up); see
also Schlaifer, 194 F.3d at 334 (extending the Sakon requirements for sanctioning an attorney to
sanctioning a party). Finally, even where some sanction is warranted, courts are to consider
sanctions lesser than outright dismissal, such as the award of attorney’s fees. See Shepherd v.
Annucci, 921 F.3d 89, 97-98 (2d Cir. 2019).
ORDER TO SHOW CAUSE
The evidence presented by Yotta, and reviewed at length during the May 16, 2024,
hearing, appears to present a substantial basis for a potential finding that Matthew Weiss
engaged in bad-faith, vexatious, and/or oppressive litigation conduct by fabricating the claims in
this case—specifically, that he falsely and intentionally claimed that the eleven fund transfers

imposed for filings that simply lack a reasonable basis in law or fact.” 620 F.3d 153, 158 n.2 (2d
Cir. 2010) (emphasis added). And in Chong v. Kwo Shin Chang, the Second Circuit summarily
vacated and remanded a sanctions order that failed to comply with the Rule 11 safe-harbor
provision because, “[a]lthough the court set out the applicable standards for sanctions under Rule
11, § 1927, and the court’s inherent authority, it did not engage in separate consideration of the
available sanctions machinery . . . .” 599 Fed. App’x 18, 19 (2d Cir. 2015) (summary order)
(cleaned up). Underlying the Second Circuit’s approach is the recognition that sanctions
imposed pursuant to the court’s inherent authority may be levied only upon a finding of bad
faith, obviating the requirement for a safe harbor that protects attorneys and parties from much
more innocent conduct that may be sanctionable under Rule 11. Other Circuits are in accord
with that approach. See, e.g., Goodvine v. Carr, 761 Fed. App’x 598, 601-602 (7th Cir. 2019)
(affirming a district court’s sanction, based arguably on its inherent authority and despite
substantial compliance with Rule 11’s safe-harbor provision, because Rule 11 “does not
principally target manufactured evidence or lies under oath,” which is “litigation misconduct of a
different degree”); Elliot v. Tilton, 64 F.3d 213, 216-17 (5th Cir. 1995) (reversing an imposition
of Rule 11 sanctions because of the safe-harbor provision but remanding the case for
consideration of inherent-authority sanctions under the bad-faith standard).
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from his Yotta account in July 2022 were unauthorized and were not made by him. There is thus
“arguably a strong basis for this Court” to impose sanctions on Weiss for engaging in bad-faith
litigation conduct. See Keitel v. D’Agostino, No. 21-CV-8537, 2022 WL 17251372, at *2
(S.D.N.Y. Nov. 28, 2022).
Accordingly, Matthew Weiss is hereby ORDERED to show cause in writing, no later
than November 1, 2024, why sanctions should not be imposed pursuant to the Court’s inherent
authority. See Rossbach v. Montefiore Med. Ctr., 81 F.4th 124, 141 (2d Cir. 2023). Defendants
may, but are not required to, file a response to any submission by Weiss. Any such response
shall be filed by November 15, 2024.
Mr. Nardo shall serve a copy of this order on Mr. Weiss within one week after the date of
this order and shall file proof of service on ECF. Effective upon such filing of proof of service,
Mr. Nardo’s motion to withdraw as counsel to Mr. Weiss (ECF No. 54) is GRANTED.
Any response to the order to show cause filed by Mr. Weiss shall be mailed to:
U.S. District Court
Southern District of New York
Pro Se Intake Unit
Room 205
500 Pearl Street
New York, New York 10007
IV.

Conclusion
For the foregoing reasons, Defendant Yotta’s motion for sanctions under Rule 11 is

DENIED. The Court continues to retain jurisdiction to consider and potentially impose further
sanctions against Matthew Weiss pursuant to the Court’s inherent authority, as described in the
Order to Show Cause above.

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Yotta’s motions to seal Exhibits A, C, H, I, J, and K are GRANTED in part and DENIED
in part. Yotta shall file, and shall serve on Weiss by mail, redacted versions of Exhibits H and K,
and of any additional billing records, consistent with this Order by October 9, 2024.
The Clerk of Court is directed to terminate the motions at ECF Numbers 64, 65, 66, and
72.
SO ORDERED.
Dated: September 25, 2024
New York, New York

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