101 F.3d 1479 (2nd Cir. 1996), 1504, O'Brien v. Alexander

Docket Nº:1504, Docket 95-7976.
Citation:101 F.3d 1479
Party Name:David J. O'BRIEN, Plaintiff-Appellant, v. Norman E. ALEXANDER; Stuart Z. Krinsly; Gerald S. Gutterman; John J. Quicke; Ellen T. Harmon; Schulte Roth & Zabel; David Brodsky; Chaye Zuckerman Shapot; Sequa Corporation; Sequa Capital Corporation; John Does 1-5, Defendants-Appellees.
Case Date:December 12, 1996
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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101 F.3d 1479 (2nd Cir. 1996)

David J. O'BRIEN, Plaintiff-Appellant,


Norman E. ALEXANDER; Stuart Z. Krinsly; Gerald S.

Gutterman; John J. Quicke; Ellen T. Harmon; Schulte Roth

& Zabel; David Brodsky; Chaye Zuckerman Shapot; Sequa

Corporation; Sequa Capital Corporation; John Does 1-5,


No. 1504, Docket 95-7976.

United States Court of Appeals, Second Circuit

December 12, 1996

Argued May 13, 1996.

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[Copyrighted Material Omitted]

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Charles B. Manuel, Jr., New York City, for Plaintiff-Appellant.

Jonathan Taylor, New York City (David M. Brodsky, Brooks R. Burdette, Schulte Roth & Zabel, New York City, of counsel), for Defendants-Appellees.

Before: MESKILL, CARDAMONE, and MINER Circuit Judges.

CARDAMONE, Circuit Judge:

After two corporations voluntarily withdrew and dismissed their suit for fraud and racketeering against plaintiff, he sued them under ten different tort theories seeking damages of $346 million. The district court dismissed plaintiff's complaint for failure to state a cause of action and sanctioned plaintiff's counsel under Rule 11 for statements he made in oral argument. Because none of the tort theories states a claim, we affirm dismissal of plaintiff's complaint.

Our review of the sanctions imposed is a more difficult and delicate task. A lawyer fighting for his client's rights in a courtroom is expected to be as wily and resourceful as Daniel Webster was in his defense of Jabez Stone in the foreclosure action brought against him by the Devil, to whom Stone had sold his soul. Stephen Vincent Benet, The

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Devil and Daniel Webster, reprinted in Law in Action: An Anthology of the Law in Literature 139 (Crown Publishers 1947). Counsel must be able to think and argue on his or her feet in a courtroom, a forum where conditions change rapidly. Yet zealous oral advocacy must be conducted according to the rules and counsel may not "knowingly make a false statement of law or fact," Model Code of Professional Responsibility DR 7-102(A.5). To violate this professional standard may result in sanctions under Rule 11. Such sanctions were imposed for two oral statements made by counsel. In our view, one violated Rule 11, the other did not.

Accordingly, on this appeal from an August 31, 1995 judgment of the United States District Court for the Southern District of New York (Chin, J.) dismissing plaintiff David J. O'Brien's second amended complaint for failure to state a cause of action and imposing sanctions against plaintiff's attorney under Fed.R.Civ.P. 11, we affirm in part, reverse in part, and remand to the district court for a reconsideration of the amount of sanctions.


  1. O'Brien's Termination

    O'Brien was employed by defendant Sequa Corporation for 18 years from 1973 to 1991. In 1986, according to his second amended complaint, he founded and later became president of a wholly-owned subsidiary of Sequa, Sequa Capital Corporation, which provided a variety of financial services. Although Sequa Capital's revenue grew substantially from 1986 through the end of 1990, defendant Gerald S. Gutterman told O'Brien in January 1991 that he was being terminated immediately. No reason was given. A Sequa attorney told O'Brien he would receive a severance package, and that Sequa would pay for a lawyer to help him review its terms.

    A month later, in February 1991, O'Brien met with defendants Norman E. Alexander, Stuart Z. Krinsly, Ellen T. Harmon and Gutterman--Sequa's chairperson, general counsel, associate general counsel and chief financial officer respectively. O'Brien, who was not represented by counsel, objected to the presence of Sequa's attorneys, whereupon Alexander agreed to act as his counsel. O'Brien then answered a series of questions and supplied information that was later used in a lawsuit against him and Jeffrey Gelmin, the president of a consulting company called GBJ Corporation.

  2. The Sequa Litigation

    O'Brien further alleges that in October 1991 he met with Krinsly and defendant Chaye Zuckerman Shapot, a partner at the law firm of Schulte Roth & Zabel, to discuss plaintiff's dealings with Gelmin. At this meeting, Krinsly attempted to induce plaintiff to agree to testify falsely in the impending litigation between GBJ Corporation and Sequa. When GBJ Corporation subsequently brought an action against Sequa in the Southern District of New York, Gelmin v. Sequa Corp., 91 Civ. No. 8675 before Judge Haight, seeking to recover for alleged violations of federal securities law and to collect unpaid fees, Shapot continued to seek testimony from O'Brien favorable to his client, and attempted to persuade O'Brien to so testify with the promise of a release from liability and severance benefits from Sequa.

    O'Brien was later deposed in the Sequa litigation, and Sequa's counsel told O'Brien his testimony was not useful to Sequa. In August 1992 Sequa joined O'Brien as a party defendant in the litigation, claiming that he conspired with Gelmin to defraud and embezzle money from Sequa, his former employer. O'Brien asserts that these accusations are groundless and that his accusers, the principal officers of Sequa, ignored documentary evidence proving that he had not acted improperly.

    Meanwhile, plaintiff contends, Shapot, Harmon, Alexander, and Krinsly, together with defendants John J. Quicke (Sequa's president) and David Brodsky (another Schulte Roth & Zabel partner), used trickery and intimidation to convince Sequa Capital employee Edward Piszko to sign false and misleading affidavits implicating O'Brien and Gelmin in wrongdoing. These affidavits were used in the Sequa case and to support an insurance claim filed by Sequa to cover losses stemming from employee dishonesty.

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    O'Brien alleges that these and other false statements were repeated to various third parties, including Sequa's accountants and a subsequent employer, and that he has suffered great financial harm as a result, pushing him to the brink of bankruptcy.

    Proceeding as a pro se defendant in the Sequa litigation, O'Brien made a motion in mid-1993 seeking various types of relief. Sequa and Sequa Capital were now realigned as plaintiffs and O'Brien as defendant. O'Brien sought dismissal of Sequa's complaint for want of personal jurisdiction, for improper venue, and for failure to state a claim or, in the alternative, he sought transfer to another venue. He also requested an order requiring Sequa to advance his litigation costs and expenses. In a ruling dated July 19, 1993, Judge Haight summarily refused to dismiss or transfer the action, noting that Sequa's complaint adequately charges O'Brien with personal participation in the underlying RICO fraud under 18 U.S.C. § 1964 and that RICO provides for nationwide service of process. But, relying on N.Y. Bus. Corp. Law § 724(c), which authorizes a court to require advances from a corporate litigant to a former officer or director if it finds the defendant has raised genuine issues either of fact or law, Judge Haight ordered Sequa to pay O'Brien's reasonable litigation expenses, including attorneys' fees. Four days after that ruling Sequa and Sequa Capital filed a notice of dismissal under Fed.R.Civ.P. 41(a)(1)(i), voluntarily withdrawing their action, without prejudice, insofar as it asserted claims against O'Brien.

  3. The Present Proceedings

    In 1994, O'Brien instituted the instant action as plaintiff against Sequa; Sequa Capital; Sequa officers Alexander, Krinsly, Gutterman, and Harmon; Schulte Roth & Zabel and partners Brodsky and Shapot; and five "John Doe" defendants. This action came before district court Judge Denny Chin. Plaintiff's second amended complaint alleges that the defendants, in various combinations, committed the following wrongs against him: malicious prosecution, abuse of process, deception in violation of N.Y. Jud. Law § 487 with respect to the February 1991 meeting and a separate violation of § 487 with respect to procuring an affidavit from Piszko, defamation, injurious falsehood, negligence, prima facie tort, general tort, and tortious interference with contract by the unnamed parties. This complaint was dismissed by Judge Chin who ruled that none of the ten tort theories stated a cause of action. O'Brien v. Alexander, 898 F.Supp. 162, 176 (S.D.N.Y.1995).

    Both parties moved for sanctions under Fed.R.Civ.P. 11. O'Brien's motion was denied. O'Brien, 898 F.Supp. at 177. Defendants' motion was granted and plaintiff's attorney was sanctioned in the amount of $1,500, $750 to be paid to the Clerk of Court and $750 to be paid to the defendants. Id. at 176. The sanction was based upon two sets of statements made by O'Brien's lawyer during oral argument of the defendants' motion to dismiss the complaint. The first statement dealt with the circumstances in which the Sequa litigation was terminated, a matter relevant to plaintiff's malicious prosecution claim. Plaintiff's attorney argued as follows: "The fact is that at that time it had become absolutely clear that nothing against Mr. O' Brien had been proved. Indeed, nothing had been properly pleaded from the outset." These words, Judge Chin found, were directly contradicted by Judge Haight's ruling in the Sequa litigation that Sequa's complaint adequately charged O'Brien with participation in the alleged fraud. O'Brien, 898 F.Supp. at 175. Judge Chin also noted Judge Haight had dismissed O'Brien's motion to dismiss the complaint in that action.

    The second sanctioned statement addressed O'Brien's abuse of process claim. In reciting examples of the alleged improper use of subpoenas in the Sequa case, O'Brien's counsel told the court

    Before Mr. O'Brien was served with the second round of subpoenas, one of Mr. Brodsky's colleagues at Schulte, Roth & Zabel telephoned Mr...

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