Centauri Shipping Ltd v. Western Bulk Carriers Ks

• Decision Date: 05 November 2007
• Docket Number: No. 07-CV-4761 (RJS)(HBP).,07-CV-4761 (RJS)(HBP).
• Citation: 528 F.Supp.2d 197
• Parties: CENTAURI SHIPPING LTD., Plaintiff, v. WESTERN BULK CARRIERS KS, Western Bulk Carriers, AS, and Western Bulk, AS, Defendants.
• Court: U.S. District Court — Southern District of New York

Page 197

528 F.Supp.2d 197

CENTAURI SHIPPING LTD., Plaintiff, v. WESTERN BULK CARRIERS KS, Western Bulk Carriers, AS, and Western Bulk, AS, Defendants.

No. 07-CV-4761 (RJS)(HBP).

United States District Court, S.D. New York.

November 5, 2007.

Kirk M.H. Lyons, Esq., Lyons & Flood, L.L.P., New York, NY, for Plaintiff.

Kevin John Lennon, Esq., and Patrick F. Lennon, Esq., Lennon, Murphy & Lennon, LLC, NY, for Defendants.

MEMORANDUM AND ORDER

RICHARD J. SULLIVAN, District Judge.

Plaintiff Centauri Shipping Ltd. ("Centauri") commenced the above-entitled action on June 5, 2007, seeking, inter alia, a writ of attachment pursuant to Rule B of the Federal Rules of Civil Procedure, Supplemental Rules for Certain Admiralty and Maritime Claims. On that date, the Honorable Kenneth M. Karas, District Judge, signed an order permitting plaintiff to attach assets of defendants Western Bulk Carriers KS ("WBC KS"), Western Bulk Carriers AS ("WBC AS"), and Western Bulk AS ("WB") (collectively, "defendants"), in the amount of $15,350,796.00 (hereinafter, "the attachment order"). By order dated September 7, 2007, the Court vacated the attachment order. Thereafter, by order dated September 12, 2007, the Court directed plaintiff's counsel, Kirk M. Lyons (hereinafter, "Counsel"), to show cause as to why sanctions should not be imposed on him pursuant to Rule 11(b) of the Federal Rules of Civil. Procedure (hereinafter, the "Order to Show Cause"). In addition, on September 28, 2007, Counsel submitted a request for a protective order "sealing the papers submitted and proceedings related to" the Order to Show Cause for sanctions. (Counsel's Sept. 28, 2007 Ltr., at 1.) For the following reasons, the Court declines to impose monetary sanctions on Counsel under Rule 11(b), and denies Counsel's request for a protective order.

I. BACKGROUND

The Court has recited the underlying facts of this action elsewhere and assumes the parties' familiarity therewith. See Transcript of Sept. 7, 2007 Proceedings (hereinafter, "Vacatur Tr.") (granting defendants' vacatur motion); and Centauri Shipping Ltd. v. Western Bulk Carriers KS, No. 07 Civ. 4761(RJS), 2007 WL 3025706, at *1-2 (S.D.N.Y. Oct.12, 2007) (denying plaintiffs request for a stay of the vacatur decision). Thus, the Court briefly recites the facts relevant to the sanctions and protective order issues.

On June 5, 2007, Counsel submitted an "Affirmation in Support of Maritime Attachment and Garnishment Pursuant to Supplemental Rule B(1)" (hereinafter, the "Affirmation") to Judge Karas, to whom this action had previously been assigned.¹ In the Affirmation, which comprised six paragraphs extending over two pages, Counsel stated the following "under penalty of perjury pursuant to 28 U.S.C. § 1746":

Your affiant has attempted to locate the defendants ... within this District. As part of the investigation, my office has contacted the Division of Corporations of the New York Department of State and found no records indicating that defendants were either incorporated or licensed to do business in the State of New York.

(Affirmation ¶ 2.)

On that same day, Judge Karas granted plaintiff's ex parte application for an attachment of the defendants' assets, pursuant to the four-prong test set forth by the Second Circuit in Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434 (2d Cir.2006), which includes a requirement that the defendant must be "present" in the district for the purposes of personal jurisdiction and service of process. See June 5, 2007 Attachment Order.)

Subsequently, on August 10, 2007, defendant WBC KS moved to vacate the attachment order pursuant to Rule E of the Supplemental Rules for Certain Admiralty and Maritime Claims. In its moving papers, WBC KS asserted that the abovequoted portion of the Affirmation was false, and that, in fact, defendants WBC KS and WBC AS had been licensed as foreign corporations in New York State since 2005, and were so licensed at the time that plaintiff sought and obtained the attachment order. (Lennon Decl. ¶ 5.)

By letter dated August 16, 2007, Counsel represented to the Court that, at the time he submitted the Affirmation, he possessed "knowledge that defendant [WBC KS] was registered" with the State as a foreign corporation. (Pl.'s Aug. 16, 2007 Ltr., at 2.) However, according to Counsel, the false statements regarding WBC KS' registration were included in the Affirmation due to a purported "clerical error" by Counsel. (Id.)

On September 5, 2007, the undersigned heard oral argument regarding defendant WBC KS' motion to vacate. By oral decision on September 7, 2007, the Court granted WBC KS' motion to vacate the attachment and stated the reasons therefor on the record (the "vacatur decision"). Specifically, the Court found that WBC KS was "present" in the district under the Aqua Stoli test on the ground that it was licensed as a foreign corporation in the New York State and, as such, under wellsettled principles of New York law, had consented to general jurisdiction in the courts of the state, and, consequently, in this Court. (See Vacatur Tr. at 7-8; see also Centauri Shipping Ltd., 2007 WL 3025706, at *5.) By order dated September 12, 2007, the Court lifted the attachment and directed plaintiff to return the surety bond to WBC. KS. On that date, the Court also directed Counsel to show cause as to why the Court should not impose sanctions on him pursuant to Rule 11(b), in light of the false statements contained in the Affirmation.² On September 28, 2007, Counsel submitted his response to the Order to Show Cause.

II. STANDARD OF REVIEW

In a 2003 case, In re Pennie & Edmonds, LLP, 323 F.3d 86, 91-92 (2d Cir.2003), the Second Circuit considered the appropriate mens rea standard for a sanction proceeding initiated by a district court against an attorney.³ There, the court made clear that, in order to impose sanctions sua sponte upon an attorney, the district court must make a "finding of bad faith on the part of the attorney." 323 F.3d at 90. The court reasoned that, as opposed to a sanctions proceeding initiated by a party's motion, "when a lawyer's submission . . . is subject to sanction by a court, the absence of a `safe harbor' opportunity" for counsel to reconsider the challenged submission weighs in favor of "avoiding the inhibiting effect of an `objectively unreasonable' standard." Pennie & Edmonds, 323 F.3d at 91 (emphasis supplied). Thus, the court concluded, the "bad faith standard applies to a court-initiated show cause order issued where an opportunity for withdrawal or correction is unavailable." Id. at 91 n. 4.

As such, the Second Circuit has prescribed "two separate standards of culpability" under Rule 11, "depending upon who initiates sanction proceedings": those initiated by a party are subject to an "objective unreasonableness" standard, and those initiated by the court are subject to "the heightened standard of `subjective bad faith' established by the Second Circuit in Pennie." HD Brous & Co., Inc. v. Mrzyglocki, No. 03 Civ. 8385(CSH), 2004 WL 1367451, at *1-2 (S.D.N.Y. June 16, 2004). Here, the Court applies the subjective bad-faith standard and, for the following reasons, declines to impose sanctions upon Counsel.

III. ANALYSIS

A. Sanctions

It is undisputed that the assertions contained in paragraph two of the Affirmation are false, at least with regard to WBC KS and WBC AS. Specifically, Counsel now concedes that, at the time he prepared and filed the Affirmation, he knew that defendants WBC KS and WBC AS were, in fact, licensed as foreign corporations in New York State, and that such information was readily available through a search of public records. (Counsel's Aff. in Response to the Order to Show Cause, dated Sept. 28, 2007 (hereinafter, "Counsel's Resp. Aff."), ¶ 10.) Thus, the Court's sole concern is whether the Affirmation was submitted in bad faith, or, in other words, was the product of deliberate dishonesty.

In his response to the Order to Show Cause, Counsel attests that, although he was aware of WBC KS' and WBC AS' respective registrations in New York State at the time he prepared and filed the Affirmation, he negligently—rather than willfully—failed to correct the false statements set forth in the Affirmation. (Counsel's Resp. Aff. ¶ 15.) Specifically, Counsel states that:

I cannot adequately explain the reason why the [Affirmation] did not recite that defendants WBC AS and WBC KS were authorized to conduct business in New York.... I take full responsibility for the omission of those facts in [the Affirmation]. It was an omission in the draft . . . that should have been caught by me but it was not. For that oversight, I apologize to the Court and defendants.... [T]he omission and failure to catch the omission were not deliberate or intentional by me.... It was a fact that would be easily noted by defendants in opposing any attachment (as it was in fact) and, therefore, there was no reason why such an omission would be deliberately or intentionally made.

(Counsel's Resp. Aff. ¶¶ 15-16.)

Despite the Court's disapproval of Counsel's conduct in this action, as discussed below, the Court finds no basis to doubt Counsel's assertion that the false statements in the Affirmation were the product of negligence rather than deliberate dishonesty. (See Counsel's Resp. Aff. ¶¶ 14-15.) Accordingly, because the record in this case does not support a finding of bad faith or a willful intent to deceive on the part of Counsel, the Court declines to impose monetary sanctions on him pursuant to Rule 11(b).

While the Court credits Counsel's assertion that he neglected to correct the false statements in the Affirmation—rather than wilfully included such statements therein—the Court takes this opportunity to note its disapproval of Counsel's conduct in this action. Specifically, the Court addresses (1) the Affirmation itself and the undisputed facts relating to its preparation; (2) Counsel's conduct...