Caisse Nationale De Credit Agricole-CNCA, New York Branch v. Valcorp, Inc.

• Decision Date: 29 June 1994
• Docket Number: AGRICOLE-CNC,NEW,No. 916,D,916
• Citation: 28 F.3d 259
• Parties: CAISSE NATIONALE DE CREDITYORK BRANCH, Plaintiff-Appellee, v. VALCORP, INC., Defendant, Peter R. Sarasohn, Esq. and Mitchell B. Seidman, Esq., Appellants. ocket 93-7892.
• Court: U.S. Court of Appeals — Second Circuit

Page 259

28 F.3d 259

29 Fed.R.Serv.3d 1252

CAISSE NATIONALE DE CREDIT AGRICOLE-CNCA, NEW YORK BRANCH, Plaintiff-Appellee, v. VALCORP, INC., Defendant, Peter R. Sarasohn, Esq. and Mitchell B. Seidman, Esq., Appellants.

No. 916, Docket 93-7892.

United States Court of Appeals, Second Circuit.

Argued Jan. 31, 1994.

Decided June 29, 1994.

Peter R. Sarasohn, Roseland, NJ (Mitchell B. Seidman, Ravin, Sarasohn, Cook, Baumgarten, Fisch & Baime, on the brief), for appellants.

Gregor F. Gregorich, New York City (Mitchell C. Shapiro, McDermott, Will & Emery, on the brief), for appellee.

Before: FEINBERG, OAKES, and KEARSE, Circuit Judges.

KEARSE, Circuit Judge:

Appellants Peter R. Sarasohn and Mitchell B. Seidman, members of the law firm representing defendant Valcorp, Inc. ("Valcorp"), in the underlying litigation, appeal from an August 9, 1993 judgment of the United States District Court for the Southern District of New York, Kevin Thomas Duffy, Judge, awarding plaintiff Caisse Nationale de Credit Agricole-CNCA, New York ("Caisse New York") $25,584.12 against Sarasohn and $26,350.24 against Seidman, as attorneys' fees with respect to proceedings following the filing of papers signed by the respective appellants in violation of Fed.R.Civ.P. 11. On appeal, Seidman and Sarasohn contend that Rule 11 sanctions were inappropriate and that the amount awarded was excessive. For the reasons below, we affirm.

I. BACKGROUND

The present lawsuit was brought by Caisse New York against Valcorp to recover on a loan on which Valcorp was in default. Valcorp raised various defenses both in its answer to the complaint and in a memorandum filed in opposition to a motion by Caisse New York for summary judgment. The district court eventually granted summary judgment against Valcorp in favor of Caisse New York, a ruling not challenged on appeal.

The sanctions were imposed against Seidman for signing Valcorp's answer to the complaint and against Sarasohn for signing Valcorp's memorandum opposing summary

judgment. The loan transaction, largely as set out in the district court's summary judgment ruling, and the course of the litigation were as follows.

A. The Loan Transaction and Caisse New York's Claim

Caisse New York was the New York branch of Caisse Nationale de Credit Agricole ("Caisse") of Paris, France, a banking corporation. Valcorp was the exclusive United States distributor of x-ray medical film manufactured by Sociedad Espanol de Productos Fotograficos Valca, S.A. ("Valca"), a Spanish corporation. Valcorp and Valca were separate entities; neither possessed an ownership interest in the other. In 1988, Valcorp owed Valca a substantial amount for previous purchases of x-ray film.

In May 1988, at the instance of Valca, Valcorp borrowed $5,000,000 from Caisse New York. Valcorp and Caisse New York executed a written agreement (the "Loan Agreement" or "Agreement"), and Valcorp signed a promissory note (the "Note") requiring it to repay the principal to Caisse New York in five semi-annual installments of $833,333, plus a final payment of $833,335 due on May 11, 1992, and to pay interest on any outstanding principal. The Loan Agreement also provided that, as an inducement to Caisse New York's making the loan, Caisse's Madrid branch ("Caisse Madrid") would guarantee the loan. In a separate agreement, Caisse Madrid received a guaranty from Valca. Valca was not a party to the Loan Agreement.

The Loan Agreement provided that in the event Valcorp failed to make payments as required, Caisse New York could declare the outstanding principal amount, plus interest, to be immediately due and payable. It also provided that Caisse New York was allowed to bring collection proceedings against Valcorp or the guarantor and that Caisse New York's enforcement remedies were cumulative and were exercisable sequentially, simultaneously, or concurrently. The Agreement provided that in the event of default, Caisse New York would be entitled to an award of reasonable attorneys' fees expended in connection with collection. The Loan Agreement stated that that document, with its attachments, which included the Note, constituted the parties' complete agreement.

After the loan documents were executed, the proceeds of Valcorp's loan were paid by Caisse New York to Caisse Madrid for the account of Valca, which applied the funds to reduce Valcorp's trade debt to Valca.

For a time, Valcorp made repayments, though, with Caisse New York's permission, some were made in amounts and at intervals different from those required by the Note and Loan Agreement. On January 14, 1992, after Valcorp had failed to make a $183,333 payment scheduled for January 13, Caisse New York declared Valcorp in default and demanded immediate payment of all outstanding principal, then totaling $1,166,666, plus $13,501 in accrued interest. When Valcorp failed to comply, Caisse Madrid issued a credit to Caisse New York for the unpaid amounts, in performance of Caisse Madrid's guaranty.

In February 1992, Caisse New York commenced the present action against Valcorp to recover the above amounts, plus prejudgment interest and attorneys' fees. Valcorp filed an answer ("Answer") admitting that Valcorp had signed the Loan Agreement and Note and had not made the payment scheduled for January 13, but asserting various defenses. The Answer asserted, inter alia, that Caisse New York was barred from recovering on the loan because Valcorp had received no consideration for entering into the loan agreement. This defense was asserted notwithstanding the acknowledgement in the Answer that the arrangement had been that "[Caisse] New York would loan $5 million to Valcorp which $5 million would immediately be paid over to Valca, Inc. in order to reduce the amount of accounts payable outstanding from Defendant to Valca, Inc. on account on Defendant's purchases of medical X-Ray film from Valca, Inc." (Answer, "General Allegations" p 6.) In addition, the Answer alleged as a defense that when Valcorp executed the loan documents, Caisse New York had represented to it that in the event of a default, Caisse New York would pursue collection from Caisse Madrid and Valca before instituting suit against Valcorp.

The Answer also requested reformation of the loan agreement documents in order to reflect that alleged representation, and it demanded damages for, inter alia, negligent misrepresentation and fraudulent inducement. Valcorp's Answer was signed by Seidman.

Caisse New York moved for summary judgment on the basis of the loan agreement documents and Valcorp's default. Valcorp submitted, inter alia, a Memorandum of Law in Opposition to Plaintiff's Motion for Summary Judgment ("Opposition Memorandum"), which argued, inter alia, that Caisse New York was not entitled to judgment because (a) there had been no consideration for the loan, and (b) the loan had been "paid in full" when Caisse Madrid performed its guaranty. The Opposition Memorandum also argued that the Loan Agreement and Note should be reformed on the ground of mutual mistake or fraudulent inducement by Caisse New York, in order to reflect Caisse New York's alleged representation that it would forbear from enforcement efforts against Valcorp unless and until collection efforts against Caisse Madrid and Valca failed. In addition, although Valcorp's own Answer had asserted that Caisse New York and Caisse Madrid "are two separate branches of the same banking corporation and are not two separate banks or bank corporations" (Answer, "Affirmative Defenses and Counterclaims" p 2), the Opposition Memorandum stated that "Valcorp has no knowledge with respect to the nature of the relationship" between Caisse New York and Caisse Madrid (Opposition Memorandum at 8) and requested additional discovery on that issue. The Opposition Memorandum was signed by Sarasohn.

In response to the question raised as to its corporate status, Caisse New York filed a reply affidavit, attaching official documentation, to show that Caisse New York and Caisse Madrid were branches of the same bank.

In a Memorandum and Order dated September 17, 1992 ("Summary Judgment Opinion"), the district court granted Caisse New York's motion for summary judgment. The court ruled, inter alia, that (1) there was no genuine dispute that Caisse New York and Caisse Madrid were branches of the same bank, and payment on Caisse Madrid's guaranty therefore did not preclude suit by Caisse New York; (2) in light of Valcorp's admissions that the proceeds of the loan were applied to reduce Valcorp's debt to Valca, the Loan Agreement was supported by consideration; (3) since the loan agreement documents constituted the parties' complete agreement, under New York law--which the Agreement and Note provided was to apply--parol evidence would not be admissible to vary the terms of the documents; and (4) in any event, statements that Valcorp attributed to Caisse New York were expressions of opinion or expectation and furnished no basis for Valcorp's claims of fraud or mistake.

A judgment dated October 7, 1992 ("October 1992 Judgment"), was entered in favor of Caisse New York against Valcorp for the unpaid principal and interest, plus $72,378.11 in attorneys' fees. Valcorp did not appeal.

B. Sanctions

In addition to ruling against Valcorp on the merits, the district court stated that the arguments raised by Valcorp's attorneys had been "patently sophist and frivolous and designed to delay the rendition of judgment." Summary Judgment Opinion at 19-20. The court asked both sides to submit written comments as to whether it should sanction defense counsel pursuant to Fed.R.Civ.P. 11. After receiving comments, including an in camera submission from Valcorp's attorneys (filed under seal as part of the record on this appeal and hereby deemed unsealed to the extent quoted in this opinion), the district court, in a Memorandum and Order dated November 19, 1992, found that "[t]he fact that defendant's claims were baseless...