Gissendanner v. Credit Corp Solutions, Inc., d/b/a Tasman Credit
Filing
14
DECISION AND ORDER granting 10 Defendant's Motion to Dismiss and denying 10 Defendant's Motion for Sanctions and 12 Plaintiff's request for sanctions. The Clerk of Court is directed to close this case. Signed by Hon. Elizabeth A. Wolford on 2/13/2019. (DPS)-CLERK TO FOLLOW UP-
^ES DIST^
—filed—^
UNITED STATES DISTRICT COURT
FEB 1 3 2019
WESTERN DISTRICT OF NEW YORK
^district
ANDREW GISSENDANER,individually and
on behalf of others similarly situated,
DECISION AND ORDER
Plaintiff,
6:I8-CV-06313 EAW
V.
CREDIT CORP SOLUTIONS,INC. d/b/a
Tasman Credit,
Defendant.
INTRODUCTION
Plaintiff Andrew Gissendaner' ("Plaintiff) commenced this putative class action,
on behalf of himself and others similarly situated, on April 23, 2018, alleging that
defendant Credit Corp Solutions, Inc. d/b/a Tasman Credit("Defendant") sought to collect
a debt from Plaintiff and others in violation of the Fair Debt Collection Practices Act, 15
U.S.C. § 1692 et seq. ("FDCPA"). (Dkt. 1). Plaintiff claims that because his credit card
account had accrued interest at a rate exceeding that permitted by New York's usury
statutes while his balance was pending with the original creditor, Defendant unlawfully
attempted to take or receive interest in violation of New York law by seeking to collect the
principal due after the account had been charged off. (See Dkt. I at 5-6; Dkt. 12 at 10-16).
'
The caption identifies Plaintiff as "Andrew Gissendaner," but several filings
identify Plaintiffs last name as "Gissendanner." (See, e.g., Dkt. 1-1; Dkt. 10-3; Dkt. 12;
Dkt. 12-2). For purposes of this Decision and Order, the Court will use the spelling that is
commensurate with the action's caption.
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Presently before the Court are Defendant's motion to dismiss for failure to state a
claim and request for sanctions (Dkt. 10), and Plaintiffs cross-motion for sanctions(Dkt.
12). For the following reasons, Defendant's motion to dismiss is granted. Plaintiffs
Complaint is dismissed, and Defendant's and Plaintiffs respective motions for sanctions
and costs are denied.
BACKGROUND
The following facts are drawn from Plaintiffs Complaint unless otherwise indicated
and are assumed true for purposes of this motion. (Dkt. 1). On January 30, 2018,
Defendant mailed a letter to Plaintiff seeking to collect an alleged debt "relating to a credit
card issued by Synchrony Bank"(the "Letter"). {Id. at
10-11;
Dkt. 1-1). The Letter
informed Plaintiff that Defendant had purchased the debt from Synchrony Bank on
December 20, 2017. (Dkt. 1 at ^ 33). By the time Defendant acquired the debt. Plaintiff
had already defaulted on his account balance. {Id. at ^ 14). Plaintiff alleges that, "[u]pon
information and belief. Defendant attempted to collect interest at a rate which exceeds New
York's maximum rate under its criminal usury statute."^ {Id. at ^ 34).
As a result. Plaintiff claims that he, and the other members of the putative class,
were harmed by Defendant's misrepresentation of the "character, legal status, or amount
of the debt" as well as its ability to collect interest above the rate set by New York's
criminal usury statute, and by Defendant's threat"to collect interest which could not legally
be collected" and its collection of interest in "an amount which was not permitted by New
^
Nowhere in the Complaint does Plaintiff allege what interest rate was charged
against the account balance.
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York law," all in violation of 15 U.S.C. §§ 1692e,(2)(A),(5), and 1692f(l). {Id. at
35-
38). Plaintiff seeks statutory and actual damages on behalf of himself and the members of
the putative class as well as recoupment of reasonable attorneys' fees and costs. {Id. at 78).
PROCEDURAL HISTORY
On April 23, 2018, Plaintiff commenced this putative class action against
Defendant, alleging that Defendant violated the FDCPA by attempting "to collect interest
at a rate which exceeds New York's maximum rate under its criminal usury statute." {Id.
at T1 34; see id. at
35-38). On June 12, 2018, Defendant filed a motion to dismiss
Plaintiffs Complaint, which also includes a request for court-ordered sanctions and costs.
(Dkt. 10). Plaintiff opposes Defendant's motion and requests the Court award him
attorneys' fees as a counter-sanction for Defendant's own request for sanctions. (Dkt. 12).
DISCUSSION
I.
Defendant's Motion to Dismiss is Granted
A.
Legal Standard
"In considering a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6), a district court may consider the facts alleged in the complaint, documents
attached to the complaint as exhibits, and documents incorporated by reference in the
complaint." DiFolco v. MSNBC Cable LLC,622 F.3d 104, 111 (2d Cir. 2010). A court
should consider the motion by "accepting all factual allegations as true and drawing all
reasonable inferences in favor ofthe plaintiff." Trs. of Upstate N.Y. Eng'rs Pension Fund
V. Ivy Asset Mgmt.,843 F.3d 561, 566(2d Cir. 2016), cert, denied, 137 S. Ct. 2279(2017).
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To withstand dismissal, a plaintiff must set forth "enough facts to state a claim to reliefthat
is plausible on its face." BellAtl. Corp. v. Twombly, 550 U.S. 544, 570(2007). "A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged." Turkmen
V. Ashcroft, 589 F.3d 542,546(2d Cir. 2009)(quoting Ashcroft v. Iqbal, 556 U.S.662,678
(2009)).
"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiffs obligation to provide the grounds of his
entitle[ment] to reliefrequires more than labels and conclusions, and a formulaic recitation
of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal
quotations and citations omitted). "To state a plausible claim, the complaint's '[f]actual
allegations must be enough to raise a right to relief above the speculative level.'" Nielsen
V. AECOM Tech. Corp., 762 F.3d 214, 218(2d Cir. 2014)(quoting Twombly, 550 U.S. at
555).
B.
Plaintiffs Complaint Fails to State a Claim Under the FDCPA
1.
General Principles
"The Second Circuit has established two principles to assist courts in applying the
[FDCPA]. First,'because the FDCPA is primarily a consumer protection statute,' its terms
must be construed liberally to achieve its congressional purpose." Derosa v. CAC Fin.
Corp., 278 F. Supp. 3d 555, 559(E.D.N.Y. 2017)(quoting Avila v. Riexinger & Assocs.,
LLC,817 F.3d 72, 75 (2d Cir. 2016)), ajf'd, 740 F. App'x 742(2d Cir. 2018). "Congress
enacted the FDCPA to 'eliminate abusive debt collection practices by debt collectors, to
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insure that those debt coliectors who refrain from using abusive debt collection practices
are not competitively disadvantaged, and to promote consistent State action to protect
consumers against debt collection abuses.'" Arias v. Gutman, Mintz, Baker & Sonnenfeldt
LLP, 875 F.3d 128, 134 (2d Cir. 2017) (quoting 15 U.S.C. § 1692(e)). "The second
principle is that, in considering whether a collection notice violates Section 1692e,[courts
in this Circuit] apply the 'least sophisticated consumer' standard." Avila, 817 F.3d at 75;
see Jacobson v. Healthcare Fin. Servs., Inc., 516 F.3d 85, 90 (2d Cir. 2008)("In this
Circuit, the question of whether a communication complies with the FDCPA is determined
from the perspective of the 'least sophisticated consumer.'"(quoting Clomon v. Jackson,
988 F.2d 1314, 1318 (2d Cir. 1993))); Kropelnicki v. Siegel, 290 F.3d 118, 127(2d Cir.
2002)(stating that the "least-sophisticated-consumer standard" is used to "effectuate" the
FDCPA's laudable purpose of"protect[ing] consumers from deceptive or harassing actions
taken by debt collectors").
"This hypothetical consumer is a 'naiVe' and 'credulous' person," Ceban v. Capital
Mgmt. Servs., L.P.,No. 17-CV-4554(ARR)
(CLP),2018 WL451637,at *2(E.D.N.Y. Jan.
17, 2018)
(quoting Altman v. J.C. Christensen & Assocs., Inc., 786 F.3d 191, 193(2d Cir.
2015)), who is absent "the astuteness of a 'Philadelphia lawyer' or even the sophistication
of the average, everyday, common consumer," Avila, 817 F.3d at 75 (quoting Russell v.
Equifax A.R.S., lA F.3d 30, 34(2d Cir. 1996)). "However, she is 'neither irrational nor a
dolt.'" Ceban, 2018 WL 451637, at *2 (quoting Ellis v. Solomon & Solomon, P.C., 591
F.3d 130, 135 (2d Cir. 2010)). As the Seventh Circuit has aptly explained, "[t]he
'unsophisticated consumer' isn't a dimwit. She may be uninformed, naive,[and] trusting,
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but she has rudimentary knowledge about the financial world and is capable of making
basic logical deductions and inferences." Wahl v. Midland Credit Mgmt., Inc., 556 F.3d
643, 645 (7th Cir. 2009)(quotations and citations omitted); accord Greco v. Trauner,
Cohen & Thomas, LLP.,412 F.3d 360, 363 (2d Cir. 2005)("We have observed ... that
in crafting a norm that protects the naive and the credulous the courts have carefully
preserved the concept ofreasonableness, and that some courts have held that even the least
sophisticated consumer can be presumed to possess a rudimentary amount of information
about the world and a willingness to read a collection notice with some care."(quotations
and citations omitted)).
This Court has recently issued a decision addressing the core legal issue underlying
the parties' dispute in this case. See Cole v. Stephen Einstein & Assoc., P.C., No. 6;18-cv06230 RAW,2019 WL 453366 (W.D.N.Y. Feb. 5, 2019). The Cole action involved the
very same law firms that appear on behalf ofPlaintiff and Defendant in the instant matter,
and the motion papers in that case were, in many ways, substantially similar to those filed
here. For this reason, the Court will dive right into the heart ofthe matter at hand.
Defendant argues that there is "simply no legal support" for the proposition that a
debt collector "is unable to collect the principal amount owed at charge-off, which may
have incorporated interest and other charges levied by the original creditor." (Dkt. 10-4
at 13). In fact, while Plaintiff contends, "[u]pon information and belief," that he was
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"paying interest at a rate of 29.99%" while his debt was still owned by Synchrony Bank,^
Plaintiff has not pursued a claim against Synchrony Bank for the imposition ofthat interest
rate.
As in Cole, Plaintiff relies upon an untenable construction of the New York usury
statute and incorrectly contends that a "logical extension" of Madden v. Midland Funding,
LLC,786 F.3d 246(2d Cir. 2015) would support his theory of FDCPA liability. (Dkt. 12
at 10, 14-16). New York law provides:
A person is guilty of criminal usury in the second degree when, not being
authorized or permitted by law to do so, he knowingly charges, takes or
receives any money or other property as interest on the loan or forbearance
of any money or other property, at a rate exceeding twenty-five per centum
per annum or the equivalent rate for a longer or shorter period.
N.Y. Penal Law § 190.40 (emphasis added). Plaintiff seeks to impose liability upon
Defendant for attempting to "take[] or receive[]" interest in violation ofNew York's usury
laws, arguing that the very act of collecting the amount owed literally "takes or receives"
interest that has since become part and parcel with the principal. {See Dkt. 12 at 14).
However, by its plain language. New York's criminal usury statute applies to the collection
of ''interest on the loan." N.Y. Penal Law § 190.40 (emphasis added). At the time
Plaintiffs debt was charged off and acquired by Defendant, all past interest charged to his
credit card account by Synchrony Bank had become the principal balance to be paid to
Defendant as his debt collector. See generally Hahn v. Triumph P'ships LLC, 557 F.3d
^
As noted above. Plaintiff makes no mention of this interest rate in his Complaint,
and he supports this assertion based only upon Defendant's motion papers. {See Dkt. 12
at 13-14).
755, 757 (7th Cir. 2009) ("[W]hen interest is compounded, today's interest becomes
tomorrow's principal, so ail past-due amounts accurately may be described as 'principal
due'."); Wahl, 556 F.3d at 646("The interest charged by [the creditor] was very much part
of the principal balance in [the debt collector]'s eyes."). Therefore, because Defendant's
attempt to collect the principal balance on Plaintiffs credit card account, by definition,
did not charge, take, or receive "interest on the loan," it also did not violate or otherwise
implicate New York's usury laws.
In an apparent attempt to avert this conclusion. Plaintiff urges this Court to extend
the Second Circuit's holding in Madden to the facts of this case. The Madden decision
involved the application of the National Bank Act's preemption provisions in the context
of an usurious interest rate charged by a non-national bank entity. The National Bank Act,
see 12 U.S.C. § 21 et seq.("NBA"),"expressly permits national banks to 'charge on any
loan... interest at the rate allowed by the laws ofthe State, Territory, or District where the
bank is located,"' Madden,786 F.3d at 250(quoting 12 U.S.C. § 85). It is well-settled that
the NBA "completely preempt[s] analogous state-law usury claims." Sullivan v. Am.
Airlines, Inc., 424 F.3d 267, 275 (2d Cir. 2005)(citing Beneficial Nat. Bank v. Anderson,
539 U.S. 1 (2003)). Accordingly,"New York usury law does not apply" to national banks
located outside New York State. Llewellyn v. Asset Acceptance, LLC,669 F. App'x 66,68
(2d Cir. 2016). Madden stands for the simple proposition that a non-national bank entity
cannot charge an interest rate exceeding that permitted by New York law after it has
purchased the debt from a national bank entity, in the absence of additional considerations.
See Madden, 786 F.3d at 250 ("To apply NBA preemption to an action taken by a non-8-
national bank entity, application ofstate law to that action must significantly interfere with
a national bank's ability to exercise its power under the NBA.").
While the instant matter does not involve a national bank, Plaintiffs debt was
originally owned by Synchrony Bank,a federal savings association (see Dkt. 1 at 2,6; Dkt.
10-4 at 13; Dkt. 12 at 11; Dkt. 12-4), which appears to be located in the State ofUtah(Dkt.
12-4). For reasons more fully set forth in Cole,the Court sees no reason why the rationale
in Madden would not apply equally to a savings association governed by the Home
Owner's Loan Act, 12 U.S.C. § 1461, et seq.("HOLA"),
Cole, 2019 WL 453366, at
*7-8. Nonetheless, to accept Plaintiffs theory of liability would require this Court to
extend Madden's applicability far beyond the Second Circuit's contemplations. For
example, in reaching its conclusion in Madden,the Second Circuit distinguished Phipps v.
F.D.I.C., 417 F.3d 1006 (8th Cir. 2005), where the plaintiffs also challenged the
applicability ofNBA preemption to certain fees charged against them. Id. at 1012-13. The
Eighth Circuit rejected the plaintiffs' argument and determined that the fees were charged
by the national bank,indicating that"[cjourts must look at the originating entity(the bank),
and not the ongoing assignee ... in determining whether the NBA applies." Id. at 1013
(quotation omitted). In distinguishing Phipps, the Madden court noted that "the national
bank was the entity that charged the interest to which the plaintiffs objected," while
"Madden objects only to the interest charged after her account was sold by [the national
bank] to the defendants." Madden, 786 F.3d at 253 (emphasis added). Accordingly, the
distinction the Second Circuit drew between Phipps and the facts in Madden suggests that
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interest charged by a national bank—or in this case, a savings association—does not
become interest charged by a third-party once the balance has been sold off.
Furthermore, as the Court mentioned in Cole, Plaintiffs theory ofFDCPA liability
would discourage non-savings association entities from purchasing debt from savings
associations because any interest lawfully charged by the latter would become unlawfully
"taken" or "received" by the former upon issuance of a collection letter. Plaintiffs
assertions run counter to the financial reality of interest payments and the role of debt
collection agencies in securing balances rightfully owed. The FDCPA was not enacted
solely to prevent credulous consumers from falling victim to unscrupulous debt collectors;
the statute also serves to "protect[]debt collectors from unreasonable constructions oftheir
communications." Jacobson, 516 F.3d at 90. Courts in this Circuit "may decline to
interpret the FDCPA in a manner that 'would thwart the obvious purpose ofthe statute.'"
Kropelnicki, 290 F.3d at 127-28 (quoting Romea v. Heiberger & Assocs., 163 F.3d 111,
118 (2d Cir. 1998)). Construing the FDCPA as a barrier to the collection of principal
composed of lawful interest charges would be wholly unreasonable and completely
unrelated to the purposes for which the statute was enacted.
Finally, while there are few if any cases that directly address Plaintiffs theory of
liability, the Second Circuit's decision in Llewellyn v. Asset Acceptance, LLC, 669 F.
App'x 66(2d Cir. 2016) strongly suggests that Plaintiffs position is legally unsound. In
Llewellyn, the plaintiff challenged the validity of her debt before the district court, arguing
that the national bank had "applied an interest rate of25.99% per annum,in excess of New
York's civil and criminal usury laws. . . ." Llewellyn v. Asset Acceptance, LLC, No. 14- 10-
CV-411 NSR,2015 WL 6503893, at *4(S.D.N.Y. Oct. 26, 2015), affd,669 F. App'x 66
(2d Cir. 2016). In confirming the validity of the plaintiffs debt, the district court
acknowledged that the national bank was not a party to the suit and determined that "no
party in this case is attempting to collect interest from [the pjlaintiff in excess of New
York's usury laws." /d at *5. On appeal, the Second Circuit noted that because the
national bank is "located in South Dakota,... New York usury law does not apply" to it.
Llewellyn, 669 F. App'x at 68. Although the Llewellyn court indicated that New York's
usury statutes did apply to the defendant debt collectors, it also found that"the district court
properly determined that neither defendant charged her usurious interest on herpost-default
debt," and that the "25.99 percent annual interest rate charged on her pre-default debt by a
national bank did not violate New York usury law" and did not "undermine the validity of
the debt now being collected." Id.(emphases added).
Likewise, Plaintiff has failed to assert that Defendant ever charged him an usurious
interest rate. The fact that Synchrony Bank may have charged Plaintiff an interest rate in
excess of New York's usury laws does not invalidate the debt sought by Defendant—
Synchrony Bank is located in Utah and thus. New York's usury laws do not apply to it.
{See Dkt. 12-4); Llewellyn,669 F. App'x at 68. While New York's usury laws do apply to
Defendant, its attempt to collect the principal due on Plaintiffs credit card account does
not implicate New York's usury statutes and does not violate the FDCPA. Therefore,
Defendant's motion to dismiss Plaintiffs Complaint is granted.
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II.
Defendant's and Plaintiffs Respective Requests for Sanctions are Denied
A.
Defendant's Request for Rule 11 Sanctions is Procedurally Defective
"Rule 11 requires that a motion for sanctions 'be made separately from any other
motion and must describe the specific conduct that allegedly violates Rule 11(b).'"
Intravaia ex rel. Intravaia v. Rocky Point Union Free Sch. Dist., No. 12-CV-0642(DRH)
(AKT),2014 WL 7338849, at *3(E.D.N.Y. Dec. 22, 2014)(quoting Fed. R. Civ. P. 11(c)
(2)). Rule 11 also requires that "the motion must be served on the offending party twenty-
one days before it is filed with the court."
Rogers v. Henry, No. 16-CV-05271
(KAM)(VMS),2017 WL 5495805, at *4(E.D.N.Y. Sept. 12,2017)(citing Fed. R. Civ. P.
11(c)(2)). "Any motion seeking Rule 11 sanctions that does not comply with these
provisions must be denied." Intravaia, 2014 WL 7338849, at *3.
As was the case in Cole, Defendant's motion for Rule 11 sanctions must be
dismissed because it was not made separately from its motion to dismiss. (Dkt. 10); see
Williamson v. Recovery Ltd. P'ship, 542 F.3d 43, 51 (2d Cir. 2008)(affirming district
court's denial of defendants' Rule 11 motion where defendants "failed to make a separate
motion for sanctions under Rule 11, and therefore failed to comply with the procedural
requirements of the rule"); L.B. Foster Co. v. Am. Piles, Inc., 138 F.3d 81, 89-90(2d Cir.
1998)(reversing district court's decision to impose sanctions where movant "included its
request for sanctions in its letter requesting a Rule 54(b) certification, thereby failing to
give [the non-movant] the separate notice referred to in Rule 11"); Begonja v. Vornado
Realty Tr., 159 F. Supp. 3d 402, 414-15 (S.D.N.Y. 2016) ("[D]efendants' request for
attorneys' fees under Rule 11 was made together with the motion to dismiss rather than as
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a separate motion, and for that reason alone it must be denied."); see also Intravaia, 2014
WL 7338849, at *6 (stating that "service of a separate motion for sanctions" is necessary
to comply with Rule 11's safe harbor provision (citing Star Mark Mgmt.,Inc. v. Kaon Chun
HingKee Soy & Sauce Factory, Ltd., 682 F.3d 170, 175(2d Cir. 2012))).
In addition. Defendant has failed to demonstrate that it served its motion for
sanctions upon Plaintiff21 days before filing it. Indeed, Defendant fails to even assert that
it has satisfied Rule 11's "safe harbor" provision in its papers.'^ Accordingly, Defendant
has failed to satisfy the procedural prerequisites for seeking Rule 11 sanctions. See Rogers,
2017 WL 5495805, at *4("Because '[cjompliance with Rule 11's safe harbor provision is
mandatory ... failure to do so will result in a denial of the sanctions motion.'"(quoting
Libaire v. Kaplan, No. CIV.A. 06-1500, 2008 WL 794973, at *12 (E.D.N.Y. Mar. 24,
2008))); Castro v. Mitchell, 111 F. Supp. 2d 302, 306 (S.D.N.Y. 2010)("A motion that
fails to comply with the safe harbor provision of Rule 11 must be denied.").
Therefore, without reaching its merits, the Court declines to consider Defendant's
request for Rule 11 sanctions, because Defendant failed to comply with Rule ll's
procedural requirements in moving for sanctions against Plaintiff. McLeod v. Verizon N.Y.,
Inc., 995 F. Supp. 2d 134, 145 (E.D.N.Y. 2014); Banfield v. UHS Home Attendants, Inc.,
No.96 CIV. 4850(JFK), 1997 WL 342422, at *3(S.D.N.Y. June 23, 1997).
Plaintiff, for his part, has filed an attorney affirmation stating that Defendant did not
serve "a Rule 11 motion in this matter prior to filing the Motion to Dismiss and Motion for
Sanctions and Costs." (Dkt. 12-2 at ^ 3). Defendant has not submitted any documentation
contradicting Plaintiffs attorney affirmation.
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B.
Defendant's Request that Sanctions be Imposed Pursuant to 28 U.S.C.
§ 1927 or the Court's Inherent Authority is Without Merit
"Another vehicle by which a court may issue sanctions is Section 1927 of Title 28
ofthe United States Code." Mahoneyv. Yamaha Motor Corp.
290 F.R.D. 363,367
(E.D.N.Y. 2013). Section 1927 provides as follows:
Any attorney or other person admitted to conduct cases in any court of the
United States or any Territory thereof who so multiplies the proceedings in
any case unreasonably and vexatiously may be required by the court to
satisfy personally the excess costs, expenses, and attorneys' fees reasonably
incurred because of such conduct.
28 U.S.C. § 1927. "The purpose of the statute is to deter dilatory tactics, unnecessary
delays in litigation, and bad faith conduct by attorneys." Palagonia v. Sachem Cent. Sch.
Dist., No. 08-CV-0791 (JS)(ETB), 2010 WL 811301, at *2(E.D.N.Y. Mar. 1, 2010);
United States v. Int'l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers ofAm.,
AFL-CIO,948 F.2d 1338,1345(2d Cir. 1991)
("By its terms,§ 1927 looks to unreasonable
and vexatious multiplications of proceedings; and it imposes an obligation on attorneys
throughout the entire litigation to avoid dilatory tactics."). However, "[c]ourts in this
[C]ircuit construe the statute 'narrowly and with great caution, so as not to stifle the
enthusiasm or chill the creativity that is the very lifeblood of the law.'" Romeo v. Sherry,
308 F. Supp. 2d 128, 148(E.D.N.Y. 2004)(quoting Mone v. C.I.R., 11A F.2d 570, 574(2d
Cir. 1985)).
"The court [also] has inherent power to sanction parties and their attorneys, a power
bom of the practical necessity that courts be able 'to manage their own affairs so as to
achieve the orderly and expeditious disposition of cases.'" Revson v. Cinque & Cinque,
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P.C., 221 F.3d 71, 78(2d Cir. 2000)(quoting Chambers v. NASCO, Inc., 501 U.S. 32,43
(1991)). "Sanctions under the court's inherent power are appropriate when a party 'has
acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" Walker v. Smith,
211 F. Supp. 2d 297, 301 (S.D.N.Y. 2003)(quoting Chambers, 501 U.S. at 45-46).
The "only meaningful difference between an award made under § 1927 and one
made pursuant to the court's inherent power" is that an award granted "under § 1927 [is]
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." Oliveri v. Thompson, 803 F.2d 1265, 1273 (2d Cir. 1986). "As a consequence,
requests for sanctions under Section 1927 and pursuant to the court's inherent authority
may be decided in a single inquiry." In re Khan, 488 B.R. 515, 531 (Bankr. E.D.N.Y.
2013), aff'd sub nom. Dahiya v. Kramer, No. 13-CV-3079 DLI, 2014 WL 1278131
(E.D.N.Y. Mar. 27,2014), aff'd sub nom. In re Khan,593 F. App'x 83(2d Cir. 2015). "To
impose sanctions under either § 1927 or this Court's inherent powers, there must be clear
evidence that '(1) the offending party's claims were entirely without color, and (2) the
claims were brought in bad faith—^that is, motivated by improper purposes such as
harassment or delay.'" United States v. Prevezon Holdings, Ltd., 305 F. Supp. 3d 468,
478-79 (S.D.N.Y. 2018)(emphasis omitted)(quoting Eisemann v. Greene, 204 F.3d 393,
396(2d Cir. 2000)); see also Wolters Kluwer Fin. Servs., Inc. v. Scivantage, 564 F.3d 110,
114 (2d Cir. 2009)("Imposition of sanctions under a court's inherent powers requires a
specific finding that an attorney acted in bad faith."); Int'l Bhd. ofTeamsters, 948 F.2d at
1345("Bad faith is the touchstone of an award under[28 U.S.C. § 1927]."). "The decision
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to issue sanctions under either ground lies within this Court's broad discretion." Prevezon
Holdings, Ltd., 305 F. Supp. 3d at 478.
Here, Defendant fails to offer any evidence that Plaintiff or his counsel acted in bad
faith in filing the Complaint. Defendant argues that sanctions are appropriate pursuant to
§ 1927 and the Court's inherent powers because "the instant Complaint accuses Defendant
of engaging in criminal conduct that is not [sic] unsupported by the law or any applicable
extension of it." (Dkt. 10-4 at 18). Plaintiff concedes that he has found no case support
for his interpretation of New York's usury statute, but instead has sought to raise a novel
theory ofFDCPA liability. {See Dkt. 12 at 10, 15-16).
As the Court indicated in its decision in Cole, Defendant's argument is not entirely
unjustifiable. There appears to be no authority standing for the proposition that interest,
lawfully charged by one entity, becomes unlawfully taken or received by a second entity
after the latter has rightfully purchased the balance and seeks to collect the principal.
Furthermore, Plaintiffs request that this Court extend Madden to cover the facts at issue
here is unwarranted and would require this Court to stretch Madden's holding far beyond
its intended scope. See generally Walters Khmer Fin. Servs., Inc., 564 F.3d at 114
("Conduct is entirely without color when it lacks any legal or factual basis....").
Nonetheless,"[sjanctions, under any authority, should not be imposed lightly. They
are the exception, not the norm, even in the face of aggressive litigation tactics and
strategy." Khan,488 B.R. at 528. Although "[b]ad faith can be inferred when the actions
taken are so completely without merit as to require the conclusion that they must have been
undertaken for some improper purpose," Schlaifer Nance & Co. v. Estate of Warhol, 194
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F.3d 323, 338 (2d Cir. 1999) (quotation omitted), general inferences of bad faith are
disfavored by courts in this Circuit, and rightfully so, see Eisemann, 204 F.3d at 397
(reversing the imposition of sanctions where "the [c]ourt's conclusory determination that
Eisemann's motion was filed in bad faith rested almost entirely on its lack of merit");
Mahoney, 290 F.R.D. at 370 (declining to award sanctions even if the plaintiffs counsel
"had knowledge that [the plaintiffs claims] regarding the motorcycle accident were
meritless" because it is "improper to determine that a party acted in bad faith if that party
filed a meritless claim").
These concerns carry even greater weight in this matter where Defendant seeks to
impose sanctions for the assertion of a novel—albeit, ill-fashioned—argument in support
ofan expansive application of a consumer protection statute. See Nemeroffv. Abelson,704
F.2d 652,654(2d Cir. 1983)(stating that although a "prevailing defendant is entitled to an
award of attorney's fees" if an action is brought "without factual basis and in bad faith,"
such an award must be issued "with caution to make sure that plaintiffs are not deterred
from suing to enforce their rights, especially when enforcement of those rights vindicates
the Constitution or acts ofCongress"). In fact, courts generally decline to impose sanctions
where the purported sanctionable conduct boils down to the advancement of a novel legal
theory or a misinterpretation of the law. See Prevezon Holdings, Ltd., 305 F. Supp. 3d at
483("Where no previous court has considered a particular or novel issue, sanctions under
§ 1927 generally are disfavored." (quotation omitted)); Salvini v. ADVFN PLC, No. 13
CIV. 7082(ER), 2016 WL 1703414, at *4(S.D.N.Y. Apr. 27, 2016)("Misunderstanding
the law or attempting to extend the law to a novel application is not an appropriate basis
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for sanctions."); Classic Tool Design, Inc. v. Castrol Indus. N. Am., Inc., 58 F. Supp. 2d
313, 315 (S.D.N.Y. 1999)(declining to award sanctions where the plaintiffs actions were
"more nearly reflecting a misunderstanding of the law ... than as a deliberate insult to the
[c]ourt"); .see also Ctr. for Discovery, Inc. v. DP., No. 16CV3936(MKB)
(RER), 2018
WL 1583971, at *13 (E.D.N.Y. Mar. 31, 2018)(noting "that the advancement of novel
theories or unique interpretations of case law cannot be the sole basis for Rule 11
sanctions"); see generally Simon DeBartolo Grp., L.P. v. RichardE. Jacobs Grp., Inc., 186
F.3d 157, 166 (2d Cir. 1999)("The issue of sanctions brings to the surface the tension
between the goal of discouraging abuse of the legal system and that of encouraging
refinement ofthe law through the assertion of novel but non-frivolous legal theories.").
Therefore, although Plaintiffs Complaint is based upon an unfounded legal theory,
the Court does not find "clear evidence" that Plaintiff or his counsel acted in bad faith in
commencing this action. Plaintiffs misunderstanding ofthe law may have resulted in the
assertion of a meritless cause of action, but this alone is not grounds for the imposition of
sanctions.
Accordingly, the Court declines to impose any award of sanctions on
Defendant's behalf.
C.
Plaintiffs Counter Request for Sanctions is Denied
As in Cole, Plaintiff has also interposed a counter request for attorney's fees and
costs as a sanction against Defendant for its own motion for sanctions. "[T]he filing of a
motion for sanctions is itself subject to the requirements of [Rule 11] and can lead to
sanctions." Safe-Strap Co. v. Koala Corp., 270 F. Supp. 2d 407, 421 (S.D.N.Y. 2003)
(quoting Fed. R. Civ. P. 11 advisory committee's note(1993 Amendments)). While it does
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not appear that Plaintiff has complied with the procedural requirements of Rule 11
discussed above,"[a] party defending a Rule 11 motion need not comply with the separate
document and safe harbor provision when counter-requesting sanctions." Patelco Credit
Union v. Sahni, 262 F.3d 897,913(9th Cir. 2001);see also Lee v. Grand Sichuan E.(N.Y.)
Inc., No. 12-CV-08652 SN, 2014 WL 199512, at *1 (S.D.N.Y. Jan. 17, 2014)("A non-
moving party seeking costs and attorneys' fees rarely needs to file a cross-motion under
Rule 11."); Fed. R. Civ. P. 11 advisory committee's note (1993 Amendments)("[S]ervice
of a cross-motion under Rule 11 should rarely be needed since under the revision the court
may award to the person who prevails on a motion under Rule 11—^whether the movant or
the target of the motion—treasonable expenses, including attorney's fees, incurred in
presenting or opposing the motion.");see generally Quinio v. Aala,No. 15-CV-4912-PKC-
SJB,2017 WL 8646668, at *7 n.5(E.D.N.Y. Dec.21,2017)(acknowledging this principle
and noting that the exception to Rule 11's procedural requirements "only applies to Rule
11 cross-motions").
Accordingly, Plaintiffs counter request for sanctions is not
procedurally defective.
Pursuant to Rule 11(c)(2), "[i]f warranted, the court may award to the prevailing
party the reasonable expenses, including attorney's fees, incurred for the motion." Fed. R.
Civ. P. 11(c)(2). Plaintiff has prevailed against Defendant's motion for sanctions insofar
as the Court declines to impose sanctions pursuant to § 1927 or its inherent powers.
However, the Court's research has not uncovered any authorities directly addressing
whether the term,"prevailing party," encompasses those cases where the original Rule 11
motion is denied for the failure to comply with Rule 11's procedural requirements. While
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it is unclear whether a party can be deemed a "prevailing party" on a cross-motion for Rule
11 sanctions under such circumstances, the Court need not decide the issue here because
sanctions are not "warranted" in this case.
"Rule 11 sanctions are an extraordinary remedy, and a movant must therefore meet
a 'high bar' before sanctions are imposed on an adversary." Lotocky v. Elmira City Sch.
Dist., 102 F. Supp. 3d 455,456(W.D.N.Y. 2015)(quotation omitted).
A pleading, motion or other paper violates Rule 11 either when it has been
interposed for any improper purpose, or where, after reasonable inquiry, a
competent attorney could not form a reasonable belief that the pleading is
well grounded in fact and is warranted by existing law or a good faith
argument for the extension, modification or reversal of existing law.
Kropelnicki, 290 F.3d at 131 (quotation omitted). "[R]ule 11 is violated only when it is
'patently clear that a claim has absolutely no chance of success.'" Oliveri, 803 F.2d at
1275 (quoting Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir.
1985), superseded on other grounds as stated by Sorenson v. Wolfson, 683 F. App'x 33,
35(2d Cir. 2017)). "The decision whether to grant sanctions under Rule 11 lies within the
discretion of the district court." Rodenhouse v. Palmyra-Macedon Cent. Sch. Dist., No.
07-CV-6438 CIS, 2008 WL 2331314, at *6(W.D.N.Y. June 3, 2008).
Although the Court did not reach the merits of Defendant's Rule 11 motion, the
reasons Defendant advanced for the imposition of sanctions under that Rule are similar to
those asserted in support of its related § 1927 and inherent powers arguments. {See Dkt.
22-4 at 27-29). Based upon the Court's review of those latter arguments. Defendant's
request for a sanctions award under any ofthese authorities was certainly "well grounded
in fact" and "warranted by existing law." Kropelnicki, 290 F.3d at 131. Plaintiff contends
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that Defendant's motion for sanctions was improperly filed as an intimidation tactic. (Dkt.
12 at 22). However, considering that even Plaintiff concedes he was unable to find case
authority in support of his interpretation of the New York usury statute (see id. at 15), as
well as his flawed belief that Madden could form the basis for his claim, there is no
indication that Defendant filed its motion for an "improper purpose," or that its request was
"utterly without support." ED Capital, LLC v. BloomfieldInv. Res. Corp., 316 F.R.D. 77,
82 (S.D.N.Y. 2016)(denying the plaintiffs request to award "costs and fees associated
with defending the Rule 11 Motion" because the Rule 11 Motion was not "filed for an
improper purpose" and was not "utterly without support"(citation omitted)); Lotocky, 102
F. Supp. 3d at 457-58 (denying cross motion for sanctions where the defendant's
"interpretation of the facts and law presented is not unreasonable, nor is it so glaringly
frivolous or unfounded as to merit an award of sanctions").
Therefore, because Plaintiffs request for an award of attorneys' fees and costs is
not warranted, the Court denies Plaintiffs cross-motion for sanctions.
CONCLUSION
For the foregoing reasons. Defendant's motion to dismiss (Dkt. 10) is granted and
Defendant's and Plaintiffs respective requests for sanctions(Dkt. 10; Dkt. 12)are denied.
The Clerk of Court is directed to close this case.
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so ORDERED.
ELIZA^TI
. Upitestates District Judge
Dated:
February 13, 2019
Roehester, New York
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