City of New York v. Fleet Gen. Ins. Grp.

• Court: U.S. District Court — Eastern District of New York
• Writing for the Court: RACHEL P. KOVNER, UNITED STATES DISTRICT JUDGE:
• Docket Number: 19-CV-6629 (RPK) (ST)
• Decision Date: 30 September 2024
• Citation: City of New York v. Fleet Gen. Ins. Grp., 19-CV-6629 (RPK) (ST) (E.D. N.Y. Sep 30, 2024)
• Parties: CITY OF NEW YORK, Plaintiff, v. FLEET GENERAL INSURANCE GROUP, INC., Defendant.
• topic: Commercial Litigation,Contracts,Insurance Law,Civil Procedure

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CITY OF NEW YORK, Plaintiff, v. FLEET GENERAL INSURANCE GROUP, INC., Defendant.

No. 19-CV-6629 (RPK) (ST)

United States District Court, E.D. New York

September 30, 2024

MEMORANDUM AND ORDER

RACHEL P. KOVNER, UNITED STATES DISTRICT JUDGE:

The City of New York moves for sanctions against non-party Richard Xia and attorneys Marc L. Mukasey and Kenneth A Caruso pursuant to Federal Rule of Procedure 11, 28 U.S.C § 1927, and the Court's inherent powers. For the reasons explained below, the motion is denied.

BACKGROUND

In January 2019, an 825-square-foot section of road and sidewalk collapsed in Queens, causing damage to property owned by non-party Consolidated Edison Corporation of New York (“ConEd”). May 12, 2021 Mem. & Order (“2021 Mem. & Order”) 4 (Dkt. #44). Alleging that an adjacent construction project contributed to the collapse, ConEd sued five entities connected to the project Fleet Financial Group, Inc.; the Perini Group, Inc.; the Racanelli Construction Group, Inc.; the Eastern Emerald Group LLC; and the Grand Eastern Mirage Group, LLC. Ibid.; see Compl., Consol. Edison Co. of N.Y., Inc. v E. Emerald Grp. LLC, No. 715229/2019 (N.Y. Sup. Ct. filed Sept. 5, 2019) (Dkt. #20-1). ConEd also sued the City, alleging, inter alia, that the City negligently supervised the site. 2021 Mem. & Order 4-5. In turn, the City demanded that defendant Fleet General Insurance Group, Inc. (“Fleet”), the project's insurer, cover its litigation costs. Id. at 67. When Fleet refused to indemnify the City, the City initiated the present suit, invoking this Court's diversity jurisdiction on the basis that the City is a citizen of New York, while Fleet is a citizen of Vermont. See Compl. ¶¶ 7-8 (Dkt. #1).

At summary judgment, the City prevailed. The Court granted the City's motion for summary judgment and denied Fleet's cross-motion on March 31, 2021, see Mar. 31, 2021 Text Order, and explained its decision in a Memorandum and Order issued on May 12, 2021, see 2021 Mem. & Order. The Court's written opinion explained that, in addition to its duty to defend the City, Fleet also had a duty to reimburse the City for any expenses it incurred defending the underlying ConEd state action. 2021 Mem. & Order 20. The opinion scheduled a conference “to discuss further proceedings in th[e] case, including proceedings concerning the amount of the City's litigation expenses.” Id. at 21. Fleet filed appeals from both the Court's March 31 and May 12 orders, see Apr. 29, 2021 Notice of Appeal (Dkt. #41); May 27, 2021 Notice of Appeal (Dkt. #51), which the Second Circuit consolidated and then dismissed because no final order had been issued pursuant to 28 U.S.C. § 1291, see Sept. 14, 2021 Mandate (Dkts. #66, 67).

The parties began proceedings to determine the City's litigation expenses. See 2021 Mem. & Order; June 16, 2021 Status Report (Dkt. #54). On June 16, 2021, the parties filed a joint status letter, in which Fleet requested the opportunity to brief five distinct issues, some of which pertained to the damages calculation (e.g., the adequacy of the City's billing records), and some of which related to other issues (e.g., whether the City had a right to appoint its own defense counsel to defend the City in the action against it by ConEd). See June 16, 2021 Status Report. Fleet also raised new arguments disputing its duty to defend. See ibid.

Less than a month later, on July 12, 2021, Fleet changed course and argued for the first time that the Court lacked subject-matter jurisdiction over the case. See July 12, 2021 Ltr. Mot. (Dkt. #58). This suit was filed under 28 U.S.C. § 1332, the federal diversity-jurisdiction statute, on the theory that Fleet was a citizen of Vermont, and Vermont alone. Compl. ¶¶ 7-8. For over a year and a half, Fleet appeared to agree. In its answer, amended answer, and Rule 56.1 statement, Fleet admitted that it was incorporated and maintained its principal place of business in Vermont. See Joint Local Rule 56.1 Statement ¶ 2 (Dkt. #20); Answer ¶ 7 (Dkt. #8); Am. Answer ¶ 7 (Dkt. #9). In its Civil Appeal Pre-Argument Statement submitted to the Second Circuit as part of its two appeals, Fleet checked the box labeled “Diversity” as the basis for federal jurisdiction. Decl. of Eric Proshansky, Ex. E 1 (Dkt. #80-5); id. Ex. F 1 (Dkt. #80-6). Only after its defeat at summary judgment did Fleet assert that its principal place of business was in fact in Queens, making it a citizen of New York and destroying diversity. See July 12, 2021 Ltr. Mot.

Following Fleet's revelation, the Court ordered jurisdictional discovery. Aug. 9, 2021 Order. After discovery, Fleet filed a Federal Rule of Civil Procedure 12(b)(1) motion to dismiss, see Mot. to Dismiss (Dkt. #77), and submitted an affidavit from its president and treasurer, Richard Xia, see Decl. of Richard Xia (“Xia Decl.”) (Dkt. #78). The declaration asserted that Fleet's “only operational office” is located in Queens; that Xia and another individual, Yu Ren, are Fleet's only officers; that Xia and Ren work out of the Queens office; and that Xia personally prepared the only insurance policy Fleet ever issued-the one in dispute in this case. Xia Decl. ¶¶ 5-7. Fleet also submitted several pieces of evidence tending to show that Fleet's principal place of business was located in New York. See Xia Decl., Exs. B-F (Dkt. #78-2 to 78-6).

The Court granted Fleet's motion to dismiss for lack of subject-matter jurisdiction, vacating its prior orders. See Sept. 30, 2022 Mem. & Order (“2022 Mem. & Order”) (Dkt. #86). The Court reasoned that the location of a corporation's “principal place of business” was a mixed question of fact and law. Id. at 8. As a result, Fleet's statements in its answer, amended answer, and Rule 56.1 statement that its “principal place of business” was in Vermont constituted “a legal conclusion unaccompanied by either the facts or law the parties used to reach it.” Id. at 9. Because Fleet's filings did not contain enough underlying facts for the Court to verify its legal conclusion that it maintained its principal place of business in Vermont, those admissions were not binding on the question of Fleet's citizenship, and thus not dispositive of the jurisdictional issue. Id. at 8-9. The Court then found that, in light of Fleet and Xia's evidentiary submissions, the City had failed to meet its burden to establish that Fleet's principal place of business was in Vermont rather than New York. Id. at 9-13. Diversity jurisdiction was therefore missing. Id. at 13.

In the memorandum and order dismissing the case, the Court stated that it would retain jurisdiction over a motion by the City “for sanctions in connection with Fleet's litigating this case through summary judgment, while representing that the parties were diverse.” Ibid. The City then filed the present motion for sanctions under Federal Rule of Procedure 11, 28 U.S.C. § 1927, and the Court's inherent powers against Richard Xia and attorneys Michael C. Lynch, Marc L. Mukasey, and Kenneth A. Caruso. See Mem. of L. in Supp. of Mot. for Sanctions (“Sanctions Mot.”) (Dkt. #88-4). The City sought sanctions against all parties for their roles in Fleet's representations to the Court regarding its citizenship, and also sought sanctions against attorneys Mukasey and Caruso only for frivolously filing two appeals from the Court's non-final summary judgment orders. See id. at 1-2. Following responses from all parties, the City then withdrew its motion for sanctions against Lynch only. See Jan. 13, 2023 Ltr. Mot. (Dkt. #116).

The City also appealed the Court's dismissal order to the Second Circuit. See Oct. 31, 2022 Notice of Appeal (Dkt. #89). While the sanctions motion was pending, the Second Circuit reversed this Court's dismissal and remanded for further proceedings. Aug. 14, 2024 Mandate (Dkt. #127). That court reasoned that the concept of a “principal place of business” had an ordinary, factual meaning, and that Fleet's repeated assertions that its principal place of business was located in Vermont constituted judicial admissions of fact binding on Fleet for purposes of this case. See id. at 4-6.

LEGAL STANDARD

A. Sanctions under Rule 11

Federal Rule of Civil Procedure 11 provides:

By presenting to the court a pleading, written motion, or other paper-whether by signing, filing, submitting, or later advocating it-an attorney or unrepresented party certifies that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances: . . .

(2) the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery.

Fed. R. Civ. P. 11(b). “[A]fter notice and a reasonable opportunity to respond,” a district court may impose sanctions “on any attorney, law firm, or party that violated the rule or is responsible for the violation.” Fed.R.Civ.P. 11(c)(1); see United States v. Int'l Bhd. of Teamsters, 948 F.2d 1338, 1343 (2d Cir. 1991) (“Rule 11 provides a vehicle for sanctioning an attorney, a client, or both.”); 5A Charles Alan Wright & Arthur Miller, Federal Practice & Procedure § 1336.2 (4th ed. June 2024) (“[T]he district court's discretion under Federal Rule of Civil Procedure 11(c) includes the power to impose sanctions on the client alone, solely on the counsel for one of the parties, a law firm, or on any combination of the three.” (footnotes omitted)).

Ordinarily Rule 11 sanctions proceedings are initiated by opposing counsel. Muhammad v....